Stocks rallied as oil tumbled and a widely watched manufacturing-gauge came in much weaker than expected, easing fears about more aggressive Federal Reserve tightening that could stifle economic growth.

Beaten-down tech shares led gains in the S&P 500, with the Nasdaq 100 outperforming after a plunge of more than 20 per cent from a record. West Texas Intermediate crude sank below US$100 a barrel amid signals that Iran nuclear talks may resume, paving the way for more oil supply to come into the market while intensifying lockdowns in China introduced risks to global demand. Treasury two-year yields were little changed ahead of the Fed’s policy decision.

Prices paid to U.S. producers rose strongly in February, underscoring inflationary pressures that will likely set the stage for the Fed’s first rate hike since 2018 on Wednesday. Still, officials will have to balance curbing higher prices without crashing the economy into a recession. A separate report Tuesday showed New York state manufacturing activity weakened considerably in early March as orders fell and delivery times lengthened.

Ukraine and Russia will resume talks on Wednesday as a key adviser to Ukrainian President Volodymyr Zelenskiy called the negotiations “difficult and viscous,” but acknowledged there is room for compromise. President Joe Biden will travel to Brussels next week to meet with NATO allies and take part in a summit of European Union leaders as Russia presses on with its invasion of Ukraine.

Comments:

  • “Tentative optimism about Ukraine cease-fire talks and tumbling energy prices have shifted focus away from growth concerns back onto inflation and central bank policy,” wrote Mark Haefele, chief investment officer at UBS Global Wealth Management. “While the war in Ukraine adds to the uncertainty, we expect the Fed to signal a strong commitment to getting inflation under control.”
  • “The Fed is entering the tightening cycle conservatively, given the potential economic impact from the Russia-Ukraine conflict, but hot inflation is still expected to be the key driver of Fed action in the months ahead,” said Lindsey Bell, Ally’s chief markets and money strategist. “Tomorrow I’ll be keeping a close eye on the economic projections for clues into where we go from here.”
  • “There are a number of headwinds facing economies and markets right now, which should mean a continuation of heightened volatility,” wrote Kristina Hooper, chief global market strategist at Invesco. “But in my view, none should be a deterrent for investors with a longer-term investing horizon.”

Elsewhere, the yuan erased losses on a news report that Saudi Arabia is in active talks with Beijing to price some of its oil sales to the Asian nation in the currency. Base metals slid as coronavirus outbreaks in China threatened to curtail the country’s economic output, hitting demand in the world’s top consumer of raw materials.

Some of the main moves in markets:

Stocks

  • The S&P 500 rose 2.1 per cent as of 4 p.m. New York time
  • The Nasdaq 100 rose 3.2 per cent
  • The Dow Jones Industrial Average rose 1.8 per cent
  • The MSCI World index rose 0.9 per cent

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1 per cent
  • The euro rose 0.1 per cent to US$1.0953
  • The British pound rose 0.3 per cent to US$1.3047
  • The Japanese yen was little changed at 118.29 per dollar

Bonds

  • The yield on 10-year Treasuries advanced one basis point to 2.15 per cent
  • Germany’s 10-year yield declined four basis points to 0.33 per cent
  • Britain’s 10-year yield declined two basis points to 1.58 per cent

Commodities

  • West Texas Intermediate crude fell 7.3 per cent to US$95.47 a barrel
  • Gold futures fell 2.1 per cent to US$1,919.20 an ounce