London - Stock markets rose while oil prices steadied on Tuesday as investors tracked developments in the war in Ukraine and digested the US Federal Reserve chief’s warning of a possible sharp interest rate hike.

Crude futures had soared more than seven percent on Monday on supply worries as European leaders debated banning imports from Russia, but they were more or less flat in Tuesday trading. Wall Street advanced around 0.8 percent in early deals, mirroring similar rises on main European markets. Some EU states want to ramp up pressure on Russian President Vladimir Putin with energy sanctions, though others, including Germany -- hugely reliant on Moscow’s fuel -- have been reluctant to target the key sector. Adding to the price pressure, Saudi Arabia warned that Yemeni rebel attacks on its oil facilities pse a “direct threat” to global supplies, after Red Sea facilities belonging to giant Saudi Aramco were targeted.

“Despite some optimism seen across markets resulting from the potential of peace talks between Russia and Ukraine, the oil market remains one of the most volatile,” noted Walid Koudmani, chief market analyst at XTB. Soaring oil prices have been a driver of turmoil on world markets in recent weeks as demand surges also as economies reopen from pandemic lockdowns. That, along with a spike in the cost of other key commodities, such as metals and wheat on the Ukraine conflict, has sent global inflation rocketing and caused central banks to hike interest rates. There is a growing fear that the global economy could endure a period of stagflation whereby prices soar but growth stalls

Rising rate

Federal Reserve chair Jerome Powell on Monday indicated the US central bank could lift borrowing costs faster than market expectations to keep a leash on inflation. The yield on the 10-year US Treasury note -- a proxy for interest rate expectations -- jumped further above two percent as traders bet on aggressive Fed rate hikes in the coming months.

“The battle of rate-hike expectations will be waged all year,” said analyst Patrick O’Hare. “Thus far, it has been the root of volatility in the capital markets as participants have been attempting to assess the ultimate impact of the Fed removing its policy accommodation on the path of the economy, inflation, and earnings,” he said. Regarding the Ukraine war, the Kremlin on Tuesday said it would like negotiations with Kyiv aimed at ending Russia’s military action to have more substance.

The two sides are holding negotiations remotely after several rounds of talks between delegations meeting on the border between Belarus and Ukraine. So far, the talks have yielded little progress, with both sides blaming the other, and none has been at the presidential level.