* U.S. stock futures edge up Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

UKRAINE: PEACE TALKS LIFT EUROPE TO 5-WEEK HIGHS (1006 GMT)

The rising trend has been building up since the open and has now lifted the pan-European STOXX 600 to levels unseen since February 21, three days before Russia's invasion of Ukraine.

Traders are currently scanning every headline coming from Istanbul where Russian and Ukrainian negotiators are holding talks.

The tone of these last news flashes, which suggest Russia is willing to negotiate despite the harsh rhetoric, have fuelled optimism across the market:

The STOXX 600 is now up 1.5% and testing 461 points. It has rebounded over 13% since March 7 which was the bottom of the Ukraine war crisis for European equities:

(Julien Ponthus)

*****

SHORT SQUEEZES COMING? (0859 GMT)

Citi's analysis of investor positioning across equity index futures suggests short squeezes are a real possibility.

"A quiet week for investment flows has left positioning largely unchanged which is to say net short across most markets. However, the positive price action in recent weeks have left most shorts in loss, particularly in the US, and this could lead to short squeezes," the U.S. investment bank writes.

"For both S&P 500 and Nasdaq 100, 100% of short positions are in loss and there is an increasing risk of a short squeeze," it also says in a note.

In another interesting point, Citi notes that the unwind of the crowded European bank trade seems to have halted, although investors remain net short and there is little immediate chance of a return of ETF investors to the sector.

(Danilo Masoni)

*****

 

ALL STOXX SECTORS SHINE (0816 GMT)

The STOXX 600 is up 1.1% this morning, with all sectors trading positively and autos in particular is rising 2.2%.

Oil and gas companies are a close second, up 1.9%, while telecoms is lagging behind but still up 0.6%.

Here is your snapshot:

Delivery Hero is Europe's biggest winner, rising 9.1%.

Barclays is losing 4.1% following a sell-down by an undisclosed seller yesterday, with shares having been sold at a 6.5% discount to Monday's close.

Finland-based energy company Fortum is faring worse, down 5%.

(Lucy Raitano)

*****

TRADE-OFFS: (0722 GMT)

It's not just the costs of producing goods that's going up, the price that must be paid to transport them shows no sign of easing -- shipping a 40-foot container unit by sea costs double what it did a year ago and remains six times above pre-pandemic levels, the Freightos FBX index shows.

This will add 1.5 percentage points to 2022 inflation, according to the International Monetary Fund (IMF), which warns that consumers will feel the full brunt of price increases only after 12 months.

This causes "complicated trade-offs" for central bankers, the IMF says.

Or maybe not. Money markets are betting policymakers will opt to stomp inflation, even at the expense of economic growth. More than 200 basis points of U.S. rate rises are priced by end-2022, which if realised, would be the most in a calendar year since 1994, Deutsche Bank points out.

In any case, the gap between two- and 10-year Treasury yields seems well on the way to turning negative for the first time since 2019, narrowing below 6 bps on Tuesday.

This is the so-called curve inversion that is considered a reliable predictor of recession. Yet, the Fed has signalled it's watching other curve segments which are still steep, giving it room to tighten policy further and faster.

The question is when do stock markets start to get seriously spooked? While two-year U.S. yields rose 165 bps this quarter and the 2-10 curve has snapped in some 70 bps, world stocks have recouped some gains recently and will end the quarter with only a small loss.

On Tuesday, Wall Street equity futures are positive and European stocks are higher, following on from Asian gains led by a 1% rise in Tokyo .

They likely have their eyes trained on "real" interest rates; stripping out inflation, 10-year yields remain deeply negative while "real" yield curves are so far sloping upwards.

Key developments that should provide more direction to markets on Tuesday:

-BOJ ramps up battle to defend yield cap

-German consumer sentiment lowest since Feb 2021

-ECB President Christine Lagarde, ECB bank supervisor Elizabeth McCaul, ECB board member Peter Kazimir

-New York Fed president John Williams, Philadelphia Fed president Harker

-U.S. monthly house price index, JOLTS job openings, consumer confidence

-U.S. 7-year note auction

-Chile to raise interest rates by 200 bps to 7.5%

(Sujata Rao)

*****

 

CEASEFIRE TALKS AND SOFTER OIL SUPPORT EUROPE: (0639 GMT)

European futures are a sea of green this morning, as oil continued to pull back and ceasefire talks between Ukraine and Russia loom later today.

The Eurostoxx 50 is set to open 0.8% higher, and the same goes for Germany's DAX . FTSE futures are signalling a 0.44% rise.

Ukrainian and Russian negotiators will meet today for the first direct talks between the two countries in over two weeks.

The predicted gains in Europe follow a 0.3% rise in the STOXX 600 on Monday, and a positive start to the week in the U.S., with the S&P 500 closing up 0.7%. Asian stocks also edged higher on Tuesday after the Bank of Japan defended its loose monetary policy and offered to purchase bonds.

Down almost 7% on Monday, Brent crude has softened another 0.8% this morning, as new lockdown measures announced in Shanghai weighed on the oil demand outlook.

Eyes will be tracking shares in Barclays, which fell 4% on Monday after the bank said it faces an estimated 450 million pound ($592 million) loss and regulatory scrutiny for exceeding a U.S. limit on sales of structured products. A top shareholder in the bank launched a discounted share sale after the close.

(Lucy Raitano)

*****