While the yields of the US Treasury are falling, Asia-Pacific stocks show mild gains due to cautious optimism.
Ukraine abandons NATO plan, Venezuela frees American prisoner
Market sentiment improves in the early hours of Wednesday after several days of pessimism primarily due to the Ukraine-Russia tussles.
The mood is reflected in the US 10-year Treasury yields dropping two basis points to 1.85%, while the S&P 500 Futures increase 0.40% per day. The US Dollar Index (DXY), which has seen an extended pullback of 22 months, and the firmer equity in Asia are also indicative of the positive risk appetite. As traders reduce safe-haven demand for gold, prices of gold have fallen to their lowest levels since August 2020.
The main risk-on catalyst for the day was Ukraine's abandonment of the plan to join NATO. This news is also a confirmation of the first humanitarian corridor to Kyiv, which will challenge the previously risk-off mood. The US hint at easing sanctions and Venezuela's release of the American prisoner are also encouraging this sentiment.
Russia might not be happy with Kyiv's decision to abandon NATO membership in order to avoid joining the European Union (EU). This can be used to discredit President Vladimir Putin's unstated goal of placing a Kremlin-controlled leader of Ukraine and keep geopolitical tension at bay. Russia recently called for the nationalization of foreign-owned factories that have shut down operations. This raised doubts about the market's optimism.
The US trade deficit rose to a record high, while small business confidence fell to its lowest level in 13 months, according to IBD/TIPP Economic Outlook gauge for March. China's Consumer Price Index rose above 0.8% and was forecast to reprint 0.9% of the prior figures, while the Producer Price Index (PPI), which reached 8.7% market consensus, had an 8.8% YoY level compared with 9.1% in previous readouts.
The market players finally have a reason for consolidating the latest moves. Therefore, the risk-on could last longer than any major negatives from Moscow. Inflation data from the US will be important to monitor on Thursday, given the Fed's indecisiveness about a March rate hike of 0.50%.