Stocks on Wall Street and Europe rebounded on Tuesday as oil prices tumbled after Russia indicated it was withdrawing some troops from exercises near Ukraine and President Vladimir Putin said he saw room for further discussions with the West.
President Joe Biden later said a Russian attack on Ukraine remained possible and that the United States would defend every inch of NATO territory.
Gold and bond prices fell as safe-haven assets lost some of their appeal as tensions may ease over Ukraine. But NATO said it had yet seen no evidence of de-escalation and that a vote in Russia’s lower house threatened a wider stalemate.
The State Duma agreed to ask Putin to recognize two Russian-backed breakaway regions in eastern Ukraine as independent, a move the European Union told Moscow not to adopt.
The dollar index pared losses as Putin and German Chancellor Olaf Scholz spoke, a sign that tensions over Ukraine are unresolved. But the index fell 0.294%, suggesting there was little flight to safety, especially as the euro, which had recently weakened, rose 0.44% to 1.1355 $.
The Russian ruble rose 1.53% to 75.51 to the dollar.
“In the back of everyone’s mind, this is not going away. Maybe Putin is saying one thing and just waiting for the right moment to act,” said Tom di Galoma, chief executive of Seaport Global Holdings.
Major stock indexes rose on both sides of the Atlantic, with growing megacaps and tech stocks leading the rally on Wall Street. Major European stock exchanges posted gains of more than 1%.
The pan-European STOXX 600 index rose 1.43% after falling three consecutive sessions, while the US-focused MSCI indicator of global equities closed up 1.34%.
On Wall Street, the Dow Jones Industrial Average rose 1.22%, the S&P 500 added 1.58% and the Nasdaq Composite advanced 2.53%.
As the Ukraine crisis simmered, the Labor Department announced in January that U.S. producer prices had risen the most in eight months, warning that high inflation could persist for much of this year.
The Federal Reserve is aware that inflation is soaring, but knows that rising house prices and mortgage rates will weigh on the wallets of many Americans, causing the economy to slow and inflation to slow, a said Peter Cramer, Senior Managing Director of SLC Management.
“They know they need to get inflation under control, but the slowdown in economic activity that will really help with that is already starting to happen,” Cramer said.
A closely watched part of the yield curve measuring the spread between two- and ten-year Treasury yields, seen as an indicator of economic expectations, is starting to signal a sharp slowdown, as it flattens to 47 .1 basis points.
The odds of the Fed staging a recession increase if policymakers don’t push back on a market narrative of about six consecutive interest rate hikes, Cramer said.
It remains to be seen whether the Fed can tame inflation by raising interest rates alone, di Galoma said.
Markets are pricing in a 65.5% chance of a 50 basis point hike and a 34.5% chance of a 25 basis point hike at the US central bank’s March meeting.
Yields on longer-dated US Treasuries and Eurozone bonds rose as investors took comfort in the potential easing of tensions over Ukraine and essentially ignored PPI data.
The benchmark 10-year Treasury note rose 5.6 basis points to 2.052%. Germany’s 10-year yield hit its highest since 2018 on the possible easing of tensions between Russia and Ukraine.
Oil prices fell more than 3% as they retreated from a seven-year high.
U.S. crude futures fell $3.39 to $92.07 a barrel, while Brent crude futures settled $3.20 at $93.28 a barrel. barrel. Precious metals also fell, with gold slipping from a multi-month high and palladium losing more than 5%. US gold futures fell 0.7% to $1,856.20 an ounce.
Bitcoin rose 4.33% to $44,066.83, another sign of the risky mood in the markets.