Markets Pull Back on Russia Hopes -- Update

By Dow Jones Business News, 
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By Tommy Stubbington and Andrea Tryphonides

U.S. stock futures reversed from earlier lows on Friday, turning cautiously positive as investors hoped the aggressive tone out of Russia, which has led to a raft of agricultural sanctions, could mellow in coming days.

Russian news agencies reported that Russia is seeking to de-escalate the conflict with Ukraine, a move welcomed by investors following weeks of tension. In addition, the initial negative reaction to the import bans by Russia was being seen by many as overinflated.

Nordea Bank analyst Dimitry Savchenko said, "In terms of [the] overall European and Russian economies, [the] food import ban will have [a] negative impact but it won't be very meaningful."

European stocks were off lows by the early afternoon, having earlier sunk to a fresh five-month slump. The Stoxx Europe 600 index was down 0.3%. Germany's DAX, which is highly sensitive to Western tension with Moscow because of Germany's strong trade links with Russia, was up 0.2%. However, the index is around 10% off the highs marked in July, when it leapfrogged the 10000 level. The DJIA front-month futures contract was up 0.1% and the equivalent S&P 500 futures contract was 0.2% higher. Changes in futures aren't necessarily reflected in market moves after the opening bell.

Elsewhere, stocks in Italian banks rallied, as Prime Minister Matteo Renzi celebrated the passage of a bill by senators to address the balance of power between the chamber of deputies and the senate. This forms part of the premier's reform agenda, although the bill still needs to be approved by the chamber of deputies.

Early in the afternoon in Milan, Intesa Sanpaolo was up 2.9% and UniCredit SpA was 2.5% higher, rebounding from recent lows. Italy's FTSE Mib index was up 1.3%, outperforming its counterparts across Europe.

"The changes will reduce the risk of a repeat of the political deadlock which slowed the Italian reform process for so long," said Christian Schulz, senior economist at Berenberg.

In commodities, oil futures rose after the U.S. authorized airstrikes in Iraq following heightened violence in the region. President Barack Obama said the U.S. must act to protect American personnel and prevent a humanitarian catastrophe after advances by violent Islamist militants. Brent crude futures for September delivery were up 0.4% to $ 105.75 a barrel, though slightly off the day's highs.

In a reversal of earlier trends, Germany's 10-year bond yield touched a fresh record low of 1.02% in early trade before picking up slightly to 1.06%. In addition, riskier euro-zone debt strengthened a touch from earlier weakness.

Italy's 10-year yield had climbed to a one-month high of 2.90%. U.S. 10-year Treasury bond yields also changed tune, hovering around the 2.4% mark having sunk to its lowest since June 2013 at 2.36%. Yields fall as prices rise.

Write to Tommy Stubbington at tommy.stubbington@wsj.com and Andrea Tryphonides at andrea.tryphonides@wsj.com


  (END) Dow Jones Newswires
  08-08-140937ET
  Copyright (c) 2014 Dow Jones & Company, Inc.


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