Asian shares went up on Thursday after reassuring comments from the Federal ReserveFederal Reserve helped Wall Street rally, though the war in Ukraine sent oil and resource prices spiralling ever higher in a grim omen for global inflation.
Western nations tightened sanctions on Russia as Ukraine's second biggest city, Kharkiv, suffered heavy bombardment on Wednesday and dozens of countries referred to Moscow for potential war crimes.
According to Thomas Mathews, markets economist at Capital Economics, investors seem to be discounting a higher chance of stagflation-lite meaning that sanctions result in even more inflation in developed markets and a bit less economic growth.
The broadest index of Asia-Pacific shares outside Japan has gone up 0.4% and was away from its recent 15 month low, according to MSCI's broadest index of Asia-Pacific shares. Japan's Nikkei gained 1.0%, while the rush to commodities lifted resource-rich Australia by 0.9%.
After bouncing overnight, S&P 500 stock futures were down a fraction, while Nasdaq futures fell by 0.2%.
European shares won a reprieve from selling, but analysts at JPMorgan warned of the dangers for clients.
They wrote in a note that they believe investors should underweight the Euro area in both the currency and equity space, given its vulnerability to any further escalation.
They said that their commodity price forecasts were revised 10 -- 20% higher across the board due to the unfolding geopolitical crisis. One silver lining is that the crisis has forced a dovish reassessment of the Fed by the market, and we continue to assume a'moderate' hiking path. Fed Chair Jerome Powell said that rates would likely be raised by only 25 basis points this month, and the war in Ukraine has made the outlook very uncertain and Futures priced out any chance of a half-point hike later in March.
Powell warned that the Fed might have to hike more aggressively if inflation kept rising. That took some of the safe-haven steam out of Treasuries and 10 year yields back to 1.878%, from Tuesday's two month trough of 1.682%.
European bonds gave up some of their recent gains after data showed that the euro zone inflation hit a record high of 5.8% in January, making it harder for the European Central Bank to keep policy super loose.
Inflation was also on the mind of the Bank of Canada when it kicked off a tightening cycle on Wednesday with a quarter-point rate hike to 0.5%.
The Canadian dollar was five-week highs at $1.2625 because of the move combined with the strength of oil prices. Commodity-linked currencies also benefitted from the Australian dollar's six week peak.
The euro remained on the defensive at $1.1112, having carved out a 22 month trough at $1.1056 overnight. The dollar was up 115.53 yen as Japan's trade position is set to worsen as it is a major importer of energy and resources.
The U.S. dollar index has reached its highest since June 2020, at 97.834. It was last at 97.377.
Gold was holding at $1,929 an ounce and was up 2% on the week so far thanks to safe-haven demand. GOL Oil surged above $110 a barrel on the assumption that the market will remain short of supply for months to come, following the sanctions on Moscow and a flood of divestments from Russian oil assets by major companies. O R U.S. crude rose by 36 cents to $110.96 a barrel, while Brent had yet to trade, having gone up 9% overnight to $114.54.