By Stella Qiu
SYDNEY (Reuters) -U.S. and European stock futures rallied on Thursday on optimism over prospects of a peace deal between Ukraine and Russia, offsetting a jump in Treasury yields as higher inflation threatens to close the door to any policy easing this year.
Trade war jitters persisted as U.S. President Donald Trump said he would impose reciprocal tariffs on Wednesday or Thursday on every country that charges duties on U.S. imports. Gold prices climbed back towards the record reached on Tuesday.
The euro <EUR=EBS> extended an overnight bounce, last up 0.5% in Asia to $1.0433, helped by Trump’s phone calls with Russian President Vladimir Putin and Ukraine’s Volodymyr Zelenskiy, which raised hopes that the years-long war could be nearing an end.
Oil prices fell for a second day, testing some key support levels, while EUROSTOXX 50 futures climbed 1%, pointing to a higher open for European markets.
Nasdaq futures rose 0.4% and S&P 500 futures gained 0.2%.
Japan’s Nikkei gained 1.4% thanks to a much weaker yen. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.2% to the highest since early December.
“There were pretty significant moves like in the euro and European assets. The spectre of war has definitely hung pretty heavy over the region,” said Kyle Rodda, a senior analyst at Capital.com.
“The optimism is probably somewhat premature.”
Chinese blue chips were 0.2% higher and Hong Kong’s Hang Seng index extended its bullish run, up 2.5% to another four-month high.
Overnight, data showed U.S. consumer prices rose by the most in nearly 1-1/2 years in January. The closely watched core inflation index, which excludes food and energy prices, rose 0.4% in the month, above forecasts for 0.3%.
With the Federal Reserve already signalling no rush to cut rates further, investors scaled back expectations of more policy easing from the Federal Reserve this year to just 28 basis points, equivalent to just one cut.
Treasury yields jumped on the inflation data, with 10-year yields up 10 basis points overnight to a three-week top of 4.66%. They were down 3 bps on Thursday at 4.6092%.
Analysts at Barclays still expect one rate cut from the Fed this year.
“Risks are now skewing toward the Fed delivering no cuts this year, and we are putting somewhat more weight on off-baseline scenarios where rate hikes enter the conversation,” they said in a note to client.
In the foreign exchange market, the dollar lost 0.2% to 154.15 yen, having jumped 1.3% overnight. The yen was the biggest loser from higher U.S. yields.
In commodities markets, oil prices extended their overnight decline as hopes grew for a peace deal between Russia and Ukraine that would mean the end of sanctions that have disrupted supply flows.
U.S. crude fell 1% to $70.64 a barrel, after dropping 2.7% overnight and Brent was also 1% lower at $74.43, having dropped 2.4% overnight.
Gold rose 0.5% to $2,918 per ounce, not far from its record high of $2,942.70 hit on Tuesday.
(Reporting by Stella Qiu; Editing by Jacqueline Wong)
