European stocks and the euro jumps on the Ukrainian advance in the northeast of the country

LONDON (Reuters) – European shares jumped on Monday after Ukrainian forces made rapid advances in Kharkiv, Russia’s worst setback since abandoning Kyiv’s bid in March, while the euro extended against European Central Bank-inspired gains last week.

Moscow on Saturday abandoned its main stronghold in northeastern Ukraine, in the sudden collapse of one of the main front lines of the war after Ukrainian forces made a rapid advance. Read more

STOXX 600 is a pan-European broadband (.stoxx) The index rose 0.7 percent in early trading, its highest level since the end of August.

German DAX (.GDAXI) It rose 1.4%, France’s CAC 40 index (.fchi) The British FTSE 100 (.FTSE) Both jumped 1%.

Asian stocks also rose in slow trading with China and South Korea on holiday.

MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It added 0.7%, having rebounded modestly from a two-year low hit last week. Japan’s Nikkei Index (.N225) It added another 1.2% after rising 2% last week.

“The situation between Russia and Ukraine is creating some rays of hope for the market that there may be a solution and provide some relief about the severity of the energy shock,” said Hani Reda, multi-asset portfolio manager at Bain Bridge Investments.

“Currently, our balance of information is being interpreted as bullish by the market,” Reda added.

News of Ukraine’s progress also helped lift the euro, which last week extended gains beyond the European Central Bank (ECB) to rally to its highest levels against the dollar in nearly four weeks.

The single currency was also helped in part by a Reuters report that European Central Bank policy makers see an increased risk that they will have to raise the key interest rate to 2% or more to curb record high inflation despite a potential recession. Read more

The euro rose in its latest rise of 1.5 percent to $ 1.0194, its highest level against the dollar’s decline since August 17.

Meanwhile, eurozone government bonds have underperformed their peers, weighed down by reports that the European Central Bank may start a discussion next month about reducing the size of its balance sheet.

The Italian 10-year government bond yield rose 6.5 basis points to 4.098%, the highest level since mid-June.

Germany’s 10-year bond yield rose 4 basis points, pushing the closely watched spread between Italian and German 10-year bond yields to 237 basis points. And the

“There is an urgent need to raise front-load rates and bring rates neutral as soon as possible,” Mohit Kumar, interest rate analyst at Jefferies, said in a note.

“Once we reach levels close to neutrality, we expect the doves to regain control in the ECB, hence we see the latest shift as a forward exercise rather than a fundamental shift in ECB policy,” Kumar added.

The dollar index, which measures the greenback against a basket of six currencies, fell 0.7% to 107.98, the lowest level since August 26.

However, the index is up more than 12% this year, having gained more than 10% against the euro, 13% against the British pound, and 24% against the Japanese yen.

Tuesday’s US inflation data will be key to determining the direction of travel in the near term.

Lower gasoline prices are expected to lower the core consumer price index by 0.1%, according to a Reuters poll.

The core position is expected to rise 0.3%, although some analysts see an opportunity for a softer report.

“Commodities in general are starting to emerge and this is likely to be the main driver for softer numbers,” said Pine Bridge’s Redha.

A weak number may revive speculation that the Fed will only raise 50 basis points this month, although it is likely to be too weak to have a real impact given how tight policy makers have been lately. Read more

Oil prices are heading lower on concerns about a global economic slowdown, although supply cuts did indeed lead to a 4% rebound on Friday.

On Monday, Brent crude settled at $92.82 a barrel, while US crude fell 0.2 percent to $86.60.

Dollar weakness helped lift gold to $1,724 an ounce, away from last week’s low of $1,690.

(Samuel Indyk reports in London, additional reporting by Wayne Cole in Sydney

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