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Shares firmer on investor hopes for Ukraine talks, not war


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LONDON — Stocks rose cautiously on Friday as investors pinned their hopes on high-level diplomacy next week to avoid a Russian invasion of Ukraine.

U.S. stock index futures rose after news that the U.S. Secretary of State Antony Blinken agreed to a meeting with Russia’s foreign minister Sergei Lavrov, raising the prospect of ending the standoff over Ukraine.

Oil was headed for a weekly fall as the prospect of extra supply from Iran returning to the market eclipsed fears of a possible supply disruption arising from a Russian invasion of Ukraine.

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“There is caution but there is no major derisking as the markets see the risk of invasion as low right now,” said Seema Shah, chief strategist at Principal Global Investors.

Indications of a firmer start on Wall Street helped to lift shares in Europe, where the STOXX index of 600 companies was up 0.3% at 466 points, six percent below the lifetime high hit in the first week of 2022.

Some good corporate news also helped to keep stocks above water.

Renault jumped 3.6% as the French carmaker swung into profit in 2021, while Finnish drug manufacturer Orion rallied 23% to the top of the STOXX 600 following positive trial results for its prostrate cancer treatment.

British retail sales grew faster than expected in January, recovering about half the losses suffered when a wave of coronavirus cases caused many shoppers to stay at home during December. London’s blue chip index was up 0.2%.

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The MSCI All Country stock index was slightly lower, dragged down by losses in Asia. S&P 500 futures were up 0.7% and Nasdaq futures gained 0.8%.

Worries over the pace of anticipated interest rate hikes by the Federal Reserve have largely been priced into markets for now, helping to underpin sentiment, Shah said.

“It looks like because of geopolitical risk, it’s pushed back the chances of a 50 basis point hike, the markets have reduced their expectations,” she said.

“The market is getting close to peak in terms of rate expections. Once you hit that peak, things should settle down.”

St. Louis Fed president James Bullard on Thursday reiterated his call for the Fed funds rate to be raised to 1% by July to combat stubbornly high inflation and Fed funds futures price about a 1/3 chance of a 50 bps hike next month to begin.

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Cleveland Fed President Loretta Mester said the pace of hikes will need to be faster than previous cycles.

There is little in the way of major data in Europe and the United States on Friday to offer direction.

ASIAN SHARES WEAK

Safe-haven currencies such as the Japanese yen and Swiss franc retreated a little in Asia trade having climbed to two-week highs on the dollar overnight, and gold eased 0.2%.

MSCI’s broadest index of Asia shares outside Japan was last down 0.7%.

Tokyo shed 0.4%, Hong Kong 1.8%, Sydney 1%, paring deeper morning losses.

Wall Street had taken a dive overnight, with the S&P 500 dropping 2.1% and the Nasdaq off 2.9% – while gold shot to an eight-month peak – on renewed U.S. warnings of an imminent Russian invasion.

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Treasuries likewise gave back some overnight gains, with the benchmark 10-year yield slightly firmer at 1.987%. Two-year yields also rose slightly to 1.4944%.

Oil dipped and Brent crude futures were last down 0.6% on Friday at $92.38 a barrel, more than 4% below Monday’s peak, and U.S. crude fell 0.7% to $91.1 a barrel.

On Friday, Japan reported a fifth straight month of inflation, with energy prices posting their biggest annual rise in 41 years.

Elsewhere in currency markets the dollar was trading at $1.1340 per euro.

After a 7.6% tumble late on Thursday, bitcoin was trading at $40,963, up 0.9% on the day.

(Editing by Lincoln Feast, Kenneth Maxwell and Christina Fincher)

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