European stocks pick up, dollar slips while investors focus on Russia-Ukraine

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European stocks opened slightly higher on Tuesday, the dollar eased and gold was just below an 8-month high as investors remained focused on the risk of Russia invading Ukraine.

The United States said on Sunday that Russia could invade Ukraine any time, a prospect that has prompted investors to sell riskier assets so far this week. 

Reuters states that investor risk appetite improved slightly on Monday, “when Russian Foreign Minister Sergei Lavrov suggested that Moscow should continue along the diplomatic path to resolve the tensions.” 

Russia’s defence ministry was quoted as saying that some troops adjacent to Ukraine are returning to their bases.

After stocks fell in the U.S. and Asian sessions, there were signs of sentiment improving in early European trading.

The MSCI world equity index, which tracks shares in 50 countries, was up 0.2% on the day at 0839 GMT, its first gain after three consecutive days of drops of more than 0.9%.

Comments from the Russian Foreign Minister that there was still mileage in negotiation and similar diplomatic efforts from Western nations looks to be helping to dampen down the anxiety that has been gripping markets in recent days.

“Nevertheless, until there is some more concrete resolution to this issue, it is unlikely that we will see a strong rally in risk sentiment,” wrote ING strategists Iris Pang and Robert Carnell in a client note.

German Chancellor Olaf Scholz is due to meet Russian President Vladimir Putin – part of a frantic push by Western diplomats to try and stop a potential attack. 

Gold – a safe-haven asset – rose to an eight-month high during the Asian session but pulled back as European markets opened. 

Oil prices also fell from the seven-year highs hit on Monday.

Investors also focused on the trajectories for major central banks to tighten monetary policy.

U.S. Federal Reserve officials are split over how aggressively to raise rates.

Markets are pricing a 60.5% chance of a 50 basis points hike and a 39.5% chance of a 0.25% hike at the U.S. central bank’s March meeting.

The U.S. dollar index was down 0.2% on the day at 96.046, pulling back from the two-week high it hit on Monday.

The euro was up 0.3% at $1.1341 and riskier currencies such as the Australian dollar and British pound also strengthened.

UK employment fell in the October-to-December period while earnings fell by 0.8% in real terms, official data showed.

The U.S. 10-year Treasury yield broke back above 2%, while European government bond yields were 2-3 bps higher on the day.

Source: Reuters

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