Europe set to open higher as Bank of Japan keeps policy unchanged
European and US stocks have continued to recover lost ground this week, despite there being little prospect of a ceasefire, or imminent cessation of hostilities, between Russia and Ukraine.
“We did falter a little bit during the European trading session after the Kremlin poured cold water on reports of major progress on peace talks, calling them “wrong,” reinforcing the risk that it pays to be sceptical about reports around peace talks,” commented Michael Hewson, Chief Market Analyst at CMC Markets UK.
“It’s becoming increasingly obvious that Russia’s interest in a negotiated agreement probably doesn’t extend beyond optics, and that it isn’t serious about a cessation of hostilities.”
Hewson added that there is also the added complication that any ceasefire would require a major climbdown from one side or the other, and with their respective positions still being miles apart, and Russia still targeting civilians, an imminent de-escalation doesn’t look likely at this point.
“The effect of this scepticism was to send oil prices sharply higher, while the IEA warned on the prospect of supply shortages in the coming months.”
Michael Hewson
This week we’ve seen the Federal Reserve, as well as the Bank of England raise interest rates by 0.25 per cent, with the Fed adopting a hawkish hike, with the prospect of another 6 rate increases, while the Bank of England raised rates for the third meeting in succession, while playing down the prospect of more aggressive action.
“This saw both the US dollar and the pound underperform yesterday, in a classic case of buy the rumour, sell the news,” Hewson said.
“What particularly stood out was the lack of any negative impact on stock markets, although bond market reaction suggested that the risk of a policy mistake was rising as yield curves flattened further.”
The Australian dollar was amongst the best performers after the latest unemployment numbers came in ahead of expectations, raising the prospect that the RBA will eventually have to drop its dovish narrative and bring forward the timing of rate hikes of their own.
Today’s European open looks set to be a positive one despite there being little prospect of a ceasefire in the near term as we head into the weekend, with Hewson pointed out that stocks are looking to finish higher for the second week in succession.
“It’s important to note that sentiment remains fragile, and that the risk of further escalation remains a real concern despite the gains of the last two weeks, as Russia continue to get bogged down by rugged Ukrainian resistance.”
“There’s little data of note today after the Bank of Japan kept monetary policy unchanged,” Hewson added.
Finally, also worth noting is US President Biden is set to speak to China’s President Xi Jinping with the topic of Russia’s war in Ukraine set to be high on the agenda with the US hoping that Xi will be able to exert his influence on Putin and try and push him towards a ceasefire.