Stock futures rally, oil turns tail on Ukraine hopes By Reuters

By Wayne Cole

SYDNEY (Reuters) – Asian share markets pared losses and Wall St futures rallied on Monday as a glimmer of hope emerged for a diplomatic solution to the Russian-Ukraine standoff, though there remained plenty of devil in the detail.

A bleak start was brightened by news U.S. President Joe Biden and Russian President Vladimir Putin have agreed in principle to hold a summit on the Ukraine crisis.

One condition for the summit was that Putin did not invade Ukraine, a turn of events that still seemed possible given Russia extended military drills in Belarus and continued to build up troops on the Ukraine border.

Indeed, the White House again warned Russia was continuing preparations for a full-scale assault on Ukraine very soon.

In a reminder of the stakes, Reuters reported Biden had prepared a package of sanctions that includes barring U.S. financial institutions from processing transactions for major Russian banks.

Just the chance of a peaceful solution was enough for stock futures to erase early losses and rise 0.4%. Nasdaq futures edged up 0.2%, having been down more than 1%. U.S. markets are on holiday, but futures still traded.

Likewise, EUROSTOXX 50 futures turned 0.3% higher, and futures swung back to flat.

MSCI’s broadest index of Asia-Pacific shares outside Japan pared their losses to be off 0.4%, while halved its drop to be down 0.8%.

Also troubling markets has been the prospect of an aggressive tightening by the U.S. Federal Reserve as inflation runs rampant. The Fed’s favoured measure of core inflation is due out later this week and is forecast to show an annual rise of 5.1% – the fastest pace since the early 1980s.

“January inflation readings have surprised materially to the upside,” noted JPMorgan (NYSE:) chief economist Bruce Kasman.

“We now look for the Fed to hike 25bp (basis points) at each of the next nine meetings, with the policy rate approaching a neutral stance by early next year.”

At least six Fed officials are set to speak this week and markets will be hyper-sensitive to their views on a possible hike of 50 basis points in March.

Recent commentary has leant against such a drastic step and futures have scaled back the chance of a half-point rise to around 20% from well above 50% a week ago.

That helped short-term Treasuries pare a little of their losses last week, while the whole curve bull flattened as safe-haven buying pulled 10-year yields down to 1.92%.

Currency markets have been relatively calm with the just a fraction firmer last week and last trading at 96.031, well short of its recent 97.441 peak.[FRX/]

The euro firmed to $1.1361 on the news of a possible Biden-Putin summit, but is clearly vulnerable should Russia actually start a ground war in…