Stocks rally on Ukraine ceasefire deal

Thursday 21:00 GMT. Stocks rallied as risk appetite was boosted by news of a Ukraine ceasefire deal but soft US data helped push the dollar and Treasury yields lower.

Monetary policy was also in focus after Sweden became the latest central bank to penalise depositors, hitting the krona, and the Bank of England presented its latest inflation report, boosting the pound.

The FTSE Eurofirst 300 rose 0.6 per cent and the S&P 500 climbed 1 per cent while the Nasdaq Composite hit a 15-year high — helped by some well-received earnings from Cisco Systems — as investors hoped a ceasefire in Ukraine would help ease tensions between Russia and the west.

“It was a risk on day for everything aided by the Ukraine ceasefire agreement with equity and bond markets higher,” said Divyang Shah, of IFR Markets.

The International Monetary Fund announced it would extend a $17.5bn facility to Kiev to help its battered economy.

Moscow’s Micex equity index advanced 2.2 per cent but the rouble remained under pressure, slipping 0.5 per cent to Rbs65.19, although off its session low.

The rebound in Russian stocks was helped by higher oil prices, on which the country’s economy is highly dependent, with Brent crude up 4.4 per cent to $57.05 a barrel.

However, investor effervescence was being contained by disappointment over some US economic reports and the drawn-out Greek debt crisis.

US retail sales fell a larger than expected 0.8 per cent in January and weekly jobless claims rose by more than forecast — data that pulled 10-year Treasury yields back from five-week highs of 2.05 per cent to trade at 1.98 per cent, down 3 basis points for the day.

The impact of the soft figures was particularly felt on currency markets with the dollar index sliding 0.9 per cent.

Eurozone finance ministers’ first attempt to grapple with the bailout demands made by the new Greek government failed, following several hours of discussions late into the night on Wednesday.

Attention now turns to a second meeting on Monday. If no agreement can be reached then, Athens is likely to head into March without any bailout assistance for the first time in nearly five years, an outcome that many worry could spark market turmoil.

Greek assets and the euro were given a boost on news of additional liquidity from the European Central Bank.

“The ECB will extend a further €5bn to Greek banks via the ELA [Emergency Liquidity Assistance],” said Mr Shah. “The game of chicken continues between Greece and EU but we reiterate that a deal is unlikely ahead of the weekend.

“The consensus continues to be that an agreement will be reached but uncertainty remains as to what form this will take but at the same time the Grexit risks are seen as increasing.”

Greek three-year borrowing costs fell 271bp but remained elevated at 18.04 per cent. Madrid’s 10-year bond yields fell 1bp to 1.62 per cent, suggesting there was little Greek-inspired credit risk contagion.

The euro climbed 0.6 per cent to $1.1401 but was still only about 2 per cent above its 11-year trough touched last month in the wake of the European Central Bank’s announcement of a €60bn-a-month quantitative easing programme.

German 10-year Bund yields slipped 3bp to 0.32 per cent as some investors continued to seek perceived havens. Gold rose $3 to $1,222 an ounce, bouncing off four-week lows.

Sterling climbed to its strongest versus the euro in seven years before giving up some gains to stand 0.4 per cent higher at £0.7409 — after the Bank of England’s quarterly inflation report was considered a bit more upbeat than expected.

Sweden’s central bank cut interest rates from zero to minus 0.1 per cent and announced a SKr10bn quantitative easing package, in an attempt to bolster growth. The move surprised the market and the krona slid more than 1 per cent before steadying at SKr8.4193 per dollar, down 0.6 per cent.

In Japan, the Nikkei 225 jumped 1.9 per cent after investors returned from a day’s holiday to see the yen had weakened against the dollar to more than Y120 — a five-week low. Tokyo stocks tend to display quite a tight inverse correlation to the yen, partly because Japan’s exporters are seen receiving a competitive boost from the currency’s declines.

But Nikkei futures fell sharply after Tokyo closed following unconfirmed reports that the Bank of Japan thinks any further stimulus measures would be counterproductive and consumer sentiment would be hurt by more yen weakness. The dollar slid 1.3 per cent to Y118.92 in response.

Elsewhere in the region, Hong Kong’s Hang Seng rose 0.4 per cent and the Shanghai Composite was up 0.5 per cent.

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Additional reporting by Jennifer Thompson in Hong Kong