Shares rally, oil drops after ‘encouraging’ Russia-Ukraine talks

NEW YORK, March 29 (Reuters) – Stock markets tore higher across the world on Tuesday and oil prices shed $2 a barrel, 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.

Even though the U.S. government warned that Russia’s latest move was a sign it is redeploying, 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.

In a sign that the exuberant stock market may run into headwinds, a closely-watched section of the U.S. yield curve briefly inverted for the first time since September 2019, signalling a possible recession ahead. [nL2N2VW227]

Indeed, some analysts warned that the latest bout of optimism may be misplaced.

“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 seven 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.

U.S. stock indices jumped over 1%, Europe’s main bourses enjoyed 1% to 2.5% gains, and oil tumbled close to $5 at one point as Russia’s deputy defence minister emerged saying Moscow has decided to drastically cut military activity around Ukraine’s capital Kyiv and also Chernihiv. read more

With Tuesday’s rally, Wall Street – aided by data that showed a rebound in U.S. consumer confidence in March – notched 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. read more /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. read more

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.

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 2.391% while the equivalent 2-year yields were at 2.367%. 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…