US futures, euro gain as war escalation fears ease

Bloomberg

US equity futures rise in choppy trading after a rocket strike inside the Polish border reminded investors of the potential for escalation in the Russia-Ukraine war, though the euro and the Polish zloty recouped earlier knee-jerk losses.
While Europe’s Stoxx 600 Index snapped a four-day rising streak, contracts on the S&P 500 traded 0.4% higher, and those on the Nasdaq 100 gained by a similar magnitude after US President Joe Biden said the missile was unlikely to have been fired by Russia. His comments knocked the yen and dollar lower, as demand for safe-haven assets gradually faded, while benchmark Treasury yields also crept higher.
The euro bounced 0.8% to the dollar, while the zloty also recovered after shedding more than 1% earlier.
The Associated Press cited unnamed US officials as saying initial findings pointed
to the projectile being fired
by Ukrainian forces at an
incoming Russian one.
“The event underscores the risks that are out there but we’ve seen the safe haven bid unwind,” said Colin Asher, senior economist at Mizuho Bank Ltd. said, adding equity markets appeared keen to extend their recent rally.
Stocks surged in the past week as softer-than-expected US inflation data has raised expectations the Federal Reserve may be able to slow down its rate-hiking pace. The data has pushed the dollar and Treasury yields lower, while a raft of strong company earnings have added to markets’ ebullience.
The greenback shed 0.3% against a basket of peers. The US currency has now lost close to 6% from end-September peaks, last week posting its biggest loss against 10 main rivals since the early days of pandemic in 2020.
Asher, who sees the moves as overdone, predicted more volatility ahead.
“I am more in the dollar-plateau versus the dollar-peak camp,” he said. “Inflation may have peaked but that doesn’t mean it’s coming down rapidly. We have probably seen the peak for the dollar but it wouldn’t surprise me if we go back into a period of softer equities.”
The pound showed a muted reaction to data showing UK annual inflation had jumped to 11.1%, trading marginally higher against the dollar. Investors focused instead on Thursday’s autumn budget which is expected to unveil spending cuts and tax hikes to repair the hole in government finances.
Meanwhile, stocks linked to Donald Trump, including blank check company Digital World Acquisition Corp., surged after the former president officially entered the 2024 US presidential race.