Asian shares up as Oil slips on Ukraine talks hopes

The undertone of oil appears to have changed at short notice. Last week, Brent Crude had scaled a 14 year high of $139/bbl. However, since then the positive noises coming from Ukraine, Russia and even the calls from the UAE to increase the supply of OPEC have been well received by the markets. The outcome is that oil has corrected nearer to $110/bbl in early trades on Monday; a fall of nearly 20% from the peaks in a short span of time.

That has had a salutary impact on the stock prices too. Most of the Asian markets, except China and Hong Kong, are actually up on Monday. This came on the back of fresh hopes of positive progress in Russian-Ukraine peace talks.

However, the fighting continued in the Ukrainian battlefield. The markets are also hoping that the volatile global situation may induce the US Fed to go slow on rate hikes rather than going all out.

Check - FED Hints at Rate Hikes from March 2022

Markets like Japan and India are up in Monday trades. The reasons are not far to seek. Firstly, both Japan and India have had decades long relations with Russia and peace talks are always welcome. Secondly, both India and Japan depend on oil imports for most of their daily oil needs.

The sharp fall in oil prices by nearly 20% from the peak is going to have a salutary effect on the current account balance of India and Japan.

However, Bond markets have continued to be under pressure. This is not just coming from the war situation but also from the possibility of rate hike. Even Jerome Powell has almost conceded that a rate hike was inevitable, but hinted that they may start slow and even slacken the pace of future rate hikes.

However, he also emphasized that the target repo rates by the middle of the year 2023 would still be honoured.

Interestingly, while the FED will be raising rates by 25 bps on 16th March, the Bank of England has already raised rates by 75 bps from the COVID lows. However, the Bank of Japan, which had followed the US cues during COVID, has preferred to stay accommodative.

This could indicate a huge monetary divergence which could envisage a situation wherein, the Western nations are raising rates, but China, Japan and India stay accommodative.

Most analysts and traders are keeping one eye fixated on gold as the  yellow metal has rallied 18% since Jan-22 and looks all set to traverse another 25% by the end of this year as per estimates of gold price put out by Goldman Sachs.

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