A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Japan's Nikkei index and various countries' stock market index prices outside a brokerage in Tokyo, Japan, February 22, 2022.
A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Japan's Nikkei index and various countries' stock market index prices outside a brokerage in Tokyo, Japan, February 22, 2022. Reuters / KIM KYUNG-HOON

Stock markets surged across the world on Tuesday and oil prices dived more than $3, as investors celebrated signs of progress in negotiations between Russia and Ukraine that they hoped would lead to a settlement in a five-week conflict.

U.S. stock indices jumped over 0.5%, Europe's main bourses enjoyed 1% to 2.5% gains, and oil tumbled 4% as Russia's deputy defence minister emerged saying Moscow has decided to drastically cut military activity around Ukraine's capital Kyiv and also Chernihiv.[.EU][O/R]

Even though the U.S. government warned that Russia's latest move was a sign it is re-deploying, not withdrawing, troops, investors nonetheless piled into risky assets, ignoring surging inflation and imminent rate hikes that could mar the growth outlook and upend stock market buoyancy.

Indeed, some analysts warned that the exuberance in shares is overdone and may not last.

"Over the last two weeks, the S&P has produced one of its sharpest rallies in history, larger than the biggest 10-day rallies in 7 of the S&P's 11 bear markets since 1927," said analysts at Bank of America Global Equity Derivatives Research.

"It has done so despite clearly weaker fundamentals (more hikes, higher inflation, and curve inversion) and the Fed leaning against equity market strength to hike faster," they wrote, adding that they think sustained gains in U.S. stocks are unlikely.

With Tuesday's rally, Wall Street - aided by data that showed a rebound in U.S. consumer confidence in March - is set for its fourth straight day of gains. Asia was lifted overnight too after the Bank of Japan defended its vast stimulus programme, although the yen's worst month since 2016 was still raising eyebrows. [.N] [/FRX]

Dealers also shrugged off bigger-than-expected drops in French and German consumer confidence data and signs that Russia will push ahead with plans to start billing for its gas in roubles, and is prepared to risk a historic sovereign debt default.

Germany's benchmark 10-year Bund yield - the main gauge of European borrowing costs - hit its highest since early 2018 and 2-year yields turned positive for the first time since 2014, adding to the seismic shifts in global rates markets this year as inflation has surged. [GVD/EUR]

U.S. Treasury yields paused their ascent on Tuesday, but have risen an eyewatering 165 basis points this quarter.

Benchmark 10-year U.S Treasuries retreated to 2.394% while the equivalent 2-year yields were at 2.382%, More than 200 basis points of U.S. interest rate rises are also now priced in for 2022 which, if realised, would be the most in a calendar year since 1994.

The difference between 2- and 10-year Treasury yields, which is tracked as a harbinger of recession, narrowed again on Tuesday in another step closer to inversion, as traders bet that aggressive tightening by the Federal Reserve could hurt the economy over the long term. [US/]

This so-called curve inversion is considered a reliable predictor of recession, although the Fed has urged investors to also watch other curve segments which are still steep, giving it room to tighten policy further and faster.

"We have seen something that is a little unprecedented because the Fed is suddenly facing a question about its credibility and whether it can effectively reduce inflation," said Amundi's head of multi-asset strategies, Francesco Sandrini.

He added that Amundi had revised its European growth forecast downward to 1.5% for the year from 2% previously, but it could be lower if the situation continues to deteriorate.

"We question a lot our forecasts," Sandrini said, especially as Europe's big companies are more heavily exposed to commodity price pressures than U.S. counterparts. "It is extremely complicated, we need to proceed cautiously."


The Dow Jones Industrial Average rose 0.24%, the S&P 500 gained 0.40%, and the Nasdaq Composite climbed 0.94%. MSCI's gauge of stocks across the globe gained 0.98%.

All the three of the main S&P 500, Dow Jones and Nasdaq indexes are on course to end March higher. However, they are also set to record their worst start to a year and indeed any quarter since the start of 2020 when the outbreak of the coronavirus pandemic wreaked havoc on financial markets.

Japanese shares had closed up more than 1% in Asia overnight although Chinese stocks and oil both slid as Shanghai continued to lock down to combat a COVID-19 surge. [.T] [.SS]

Tokyo's rally had come as the Bank of Japan vowed to keep its stimulus pumping, offering to buy unlimited amounts of 10-year government bonds to prevent its bond yields from rising too much further.

The central bank was finding it tough going, however. The 10-year JGB yield stood at 0.245%, right up against the BOJ's implicit 0.25% cap.

This didn't help the yen much, which was at 122.72 per dollar even after staging a small recovery from its bruising the day before.

Among commodities, oil prices saw another $3 plunge as Russia's top negotiator in the Ukraine talks described the discussions as "constructive". That left Brent down 3.2% at $108.85 per barrel and U.S. WTI at $102.86.

Prices had weakened earlier too as China's financial hub Shanghai tightened its latest COVID-19 lockdown, after it reported a record 4,381 asymptomatic cases and 96 symptomatic cases for March 28 - though the caseload remains modest by global standards.

Spot gold dropped 0.5% to $1,914.20 an ounce. [GOL/]