Market movers: peace talks, China rally, nickel, Avast

Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting. 

EUROPEAN MARKETS

Optimistic comments from President Zelensky, who said peace talks are starting to ‘sound more realistic’ while conceding Ukraine will not join Nato, have helped to lift risk sentiment across equity markets, with sharply positive momentum across Asia carrying forward into the European equity session. Travel and leisure, autos and financials are leading the gains in Europe with all major bourses in the green.

CHINA REBOUNDS

After a brutal two-day sell-off, tech stocks in China are staging a dramatic rebound with the Hang Seng tech index surging 22%, propped up by Beijing’s verbal intervention, with China’s state council vowing to keep markets stable. Markets were also lifted by risk-on sentiment amid the growing prospect of peace between Russia and Ukraine after President Zelensky conceded that Ukraine will not join Nato, bringing the two sides closer to a diplomatic solution.

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RUSSIA DEBT DEADLINE

Following a brutal sell-off for the rouble and Russian stocks, Russia’s equity index, the MOEX remains closed for a third consecutive week, in its longest trading halt in history. Meanwhile, Russia is widely expected to default on two dollar-denominated bonds with $117 million due by today’s deadline, resulting in significant write-offs for investors.

The Russian government looks set to officially enter a sovereign default on foreign currency debt for the first time in more than a century, following President Putin’s invasion of Ukraine and retaliatory Western sanctions which have led to a collapse of the Russian economy. However Russia’s finance minister Anton Siluanov hit back, saying the Kremlin has the ‘necessary funds to service our obligations’.

The onset of war, Western sanctions, the exodus of international conglomerates and freefalling investor confidence have led to Russia’s downfall, with its currency, financial system, and the wider economy in a state of ruin. Although Russia technically has a 30-day grace period before an official default, a full-blown collapse is almost inevitable at this stage.

OIL

With WTI and Brent crude slumping 7% to settle below $100 a barrel on Tuesday for the first time since February, oil prices are attempting to regain ground amid optimism towards ceasefire talks between Russia and Ukraine. With the Fed expected to raise rates today for the first time since before the pandemic, a strong US dollar could also dampen the prospects for crude oil.

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Brent and WTI are hovering either side of $100 a barrel, as the market attempts to weigh up any further upside impact from the Ukraine war and Russia’s supply shock against downside pressures from progressing peace talks, a strengthening greenback as the Fed raises rates, and softening oil demand from China, as well as a potential inflation-induced Western economic slowdown.

THE FED

During an ordinary week, the Federal Reserve’s first interest rate hike in more than three years would take centre stage for markets. However, in these extraordinary times, the Ukraine war, China’s Covid-19 resurgence and their combined impact wreaking havoc on the commodities complex and equity markets have deservedly usurped the central bank’s dominance.

The Fed faces a complex equation when it lays out its latest economic projections today, attempting to quantify the impact of tensions between Russia and Ukraine, the energy price shock and a possible slowdown in China on US unemployment, inflation, and growth. On top of that, the Fed is walking a tightrope as it looks to temper some price pressures in the US economy without derailing an already fragile economic trajectory. Expectations are for around five quarter-percentage-point rate increases by year-end, taking the range to between 1.25 and 1.5%, although the market is pricing in a more hawkish and aggressive rate hiking path ahead.

NICKEL

Nickel has opened lower by more than 8%, attempting to play catch up after a week-long trading halt on the London Metal Exchange. However, today’s move of more than 5% meant the commodity was temporarily suspended once again, having surpassed its downside limit.

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Having surged more than 50% last week pushing above $100,000, the commodity looks set to further wild swings and trading halts as the exchange desperately attempts to calm the disorderly price action and reinstate confidence in the volatile and messy market.

AVAST 

Shares in Avast (LSE:AVST) have slumped more than 8% and are languishing at the bottom of the FTSE 100 after the UK anti-trust regulator warned of an in-depth probe if competition concerns are not addressed over its deal with NortonLifeLock. The two firms have five working days to respond to the Competition and Markets Authority (CMA).

The regulator’s involvement creates a spanner in the works for the $8.6 billion acquisition of Avast by NortonLifeLock. There are concerns that the tie-up would diminish competition, resulting in potentially less choice and higher prices for cyber security software among British customers. Given the backdrop of tensions between Russia and Ukraine and fears of cyber warfare, cyber security products are more important than ever, potentially contributing to this aggressive response from the CMA, which both sides will be keen to respond to in a way that will breathe life back into the deal.