Stocks rise, oil falls on hopes for Ukraine peace talks

European stocks are set to start the week cautiously higher, building on gains from the previous week ahead of further peace talks.

• Risk sentiment rises with hopes for peace despite fighting on the ground continuing.
• Oil prices fall, extending losses from the previous week.
• Interest rate decisions from the Fed, BoE & BoJ are due this week

The mood in the market is one of cautious optimism as trading for the week begins. Hopes of a diplomatic solution to the Ukraine crisis are buoying stocks, even as fighting continues on the ground and a missile hits a base close to the Polish border. Even so, both Russia and Ukraine gave their most upbeat assessment yet of the prospect for peace talks. Risk sentiment has improved, but investors remain cautious, this is still very early days, and talks could still quickly run into a stalemate.

After booking 4% gains last week, the DAX points to a 1.3% jump on the open. Meanwhile, the FTSE booked gains of 2% last week and is heading for a 0.6% rise at the start of trade today.


Oil

Lately, oil prices have been on a rollercoaster ride, and 2% daily swings are commonplace. Oil prices fell 5% last week, after gaining 26% in the previous week, and are trading 2.7% lower heading towards the European open today. Comments from the US Secretary of State Wendy Sherman that Russia could be willing to progress negotiations with Ukraine are helping oil prices fall.

Oil surged to a 14 -year high last week on fears of tight supply and as the US banned Russian oil imports. However, Europe didn’t join the US with the same action, which brought some relief to the market. Still, oil supply remains tight without additional supply to plug the gap left from the US Russian oil ban. A diplomatic solution to the Ukraine crisis could be the quickest and surest way for oil supply to ramp up again.


Central banks bonanza

Falling oil prices will help ease stagflation concerns building ahead of a big week for central banks. This week sees the Federal Reserve, the BoE, and the BoJ announce interest rate decisions. The Fed’s 25 basis point rate hike is almost considered certain, after inflation shot up to 7.9% YoY in February, almost four times the Fed’s 2% inflation target.

Meanwhile, the BoE could also bring an interest rate hike to the table, in what would be the third consecutive rate hike. Even so, the pound is struggling around 2022 lows at 1.30 amid fears of the BoE acting too aggressively to tighten monetary policy as economic growth looks set to stall. BoE policymaker Silvana Tenreyo warned that rising energy prices would dampen growth.

The BoJ is expected to stick with its broadly dovish monetary policy, which serves to highlight the central bank divergence between the Fed & the BoJ, and goes some way to explain Japanese yen weakness. USD/JPY trades at a 5-year high as it heads towards 118.00.