Wall Street traders breathed a sigh of relief on Tuesday (Feb. 15) thanks to a relaxation of Ukraine tensions. The Dow Jones Industrial Average snapped a 3-day losing streak, opening 0.88% or 303 points higher, after Russia said some of its troops were returning to base after exercises near Ukraine and stressed the need for continued dialogue on security.
Russian Foreign Minister Sergey Lavrov stated Moscow believes a security deal with Washington is possible to achieve. The S&P 500 went up by 1.07% while the Nasdaq 100 increased by 1.48% or 211 points.
The CBOE Market Volatility index, a barometer of investor expectations for future market moves, fell back sharply after moving up to its highest level in nearly three weeks in the previous session.
Geopolitical tensions had knocked the stock market down the last three days which had a rocky start to 2022, with the tech-rich Nasdaq down almost 10% so far this year. Worries over multiple Federal Reserve interest rate hikes also kept investors on edge.
Meanwhile, traders have largely shrugged off a report from the Labor Department showing U.S. producer prices increased by the most in eight months in January.
The producer price index (PPI) for final demand went up 1.0% last month after rising by an upwardly revised 0.4% in December. Economists had expected producer prices to increase by 0.5%.
“The combination of stubborn supply disruptions and elevated energy prices will prevent producer prices from reverting to more normal patterns until later this year,” said Mahir Rasheed, U.S. Economist at Oxford Economics.
The fresh data is another sign that high inflation could persist through much of this year.
Last week, the Labor Department said the annual inflation rate accelerated to 7.5% in January, the highest since February of 1982 and well above market forecasts of 7.3%.
Markets are pricing a 61.8% chance of a 50 basis point hike and a 38.2% chance of a 0.25% hike at the Fed’s March meeting as it attempts to curb the surge in inflation. Minutes from the central bank’s January policy meeting are due on Wednesday.
Earlier, European stocks ended on a bright note. The pan European Stoxx 600 closed up 1.43%. London’s premier index FTSE 100 rose 1.03%, Germany’s DAX advanced 1.98%, France’s CAC 40 grew 1.86% and Switzerland’s SMI added 1.29%.
“If we have, let’s say, a resolution in terms of the geopolitical issues that we currently face, I would imagine that the global economy takes a breather, risky elements of the market can certainly recover, the cyclicality and the value trade should probably do well, and European equities particularly that have come under pressure, we assume that they can continue to outperform, so we would certainly look into that angle specifically,” Philipp Lisibach, chief global strategist at Credit Suisse, told CNBC.