- The resumption of gas flows in Russia alleviates investor concerns
- The ECB is expected to raise rates by at least 25 basis points
- ECB rate decision at 12.15 GMT
- Crude oil falls as rate hikes fuel demand for concern
- Italian Prime Minister Draghi resigns and affected banks
LONDON, July 21 (Reuters) – Stock markets and the euro held ground on Thursday with investors’ nerves calmed by the resumption of Russian gas supplies to Europe as they await what is expected to be the first rise of European Central Bank interest rates on 11. years.
Russian gas flow resumed in Germany after a 10-day hiatus, easing fears of a possible blow to the European economy if gas supplies need to be rationed. Read more
After an early hesitation following the resignation of Italian Prime Minister Mario Draghi, the euro rose, moving even further away from last week’s parity with the green dollar and bolstered by expectations that the ECB could offer a large rate hike of 50 basis points.
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Russian President Vladimir Putin has warned that gas supplies could be further reduced or even halted, prompting the EU to ask its members to reduce use.
“European markets will be pulled and pushed by Putin’s mood,” said Michael Hewson, chief market strategist at CMC Markets.
Markets are looking to see how far the ECB will raise interest rates later at 12.15 GMT on Thursday, with a 25 basis point (bps) rise in price has already been made, Hewson said. Read more
Traders are also waiting for the details of an ECB tool to contain stress in bond markets, made even more urgent by a ruined government in Italy, one of the most indebted countries in the eurozone.
Italian spreads and debt / GDP
Hewson said U.S. Federal Reserve and Bank of England rate hikes next week in August are also highly anticipated at this time.
The STOXX index (.STOXX) of 600 European companies rose 0.18%, recovering from morning losses as US stock index futures rose. The MSCI All-Country Stock Index (.MIWD00000PUS) was stable.
Italian bonds sold hard after the collapse of Mario Draghi’s government in the eurozone’s third-largest economy. Read more
The index of Italian banks (.FTITLMS3010), a sector sensitive to political crises, fell 4%.
Nadege Dufosse, head of cross-asset strategy at Candriam, said the political crisis in Italy is putting more pressure on the ECB to have its so-called anti-fragmentation tool to limit bond yields and reassure markets.
“I think they will have to comply at this point, I think today is the main risk. It has to convince investors that it will be efficient,” Dufosse said.
Following the latest series of rate hikes, investors will try to assess whether the economy is heading for a soft or hard landing as higher borrowing costs are absorbed, he said.
“It’s the expectations for the fourth quarter or next year that can really determine the market trend. At the moment we don’t have the answer and we just have to be very pragmatic,” Dufosse said.
Contrary to the trend, the Bank of Japan left its monetary policy super loose on Thursday, as expected, and slightly raised its inflation forecasts. The yen remained stable at 138.37 per dollar. Read more
Nasdaq 100 futures rose 0.15%, and S&P 500 futures reduced almost all of their previous losses. Profits from Blackstone, Dow Chemical, Philip Morris International, Twitter and American Airlines were due to pay off Thursday.
CR RELEASES LOSSES
Oil prices fell for the second straight session, as concerns about demand outstripped global supply after U.S. government data showed lukewarm gasoline consumption during the peak summer driving season.
Brent crude was down 4% to $ 102.63 a barrel, while U.S. West Texas Intermediate was down 4% to $ 95.72 a barrel.
Wall Street indices rose overnight, but even better-than-expected results from Tesla (TSLA.O) after hours could not bring the positive mood to the session. Asia. Read more
MSCI’s broader Asia-Pacific non-Japan equities index (.MIAPJ0000PUS) fell 0.1% and Japan’s Nikkei (.N225) gained 0.4%.
A cloud over Chinese growth due to its strict controls of COVID-19 and further problems in its troubled real estate market is also generating sadness about the outlook for global demand.
Growth-sensitive commodities, such as copper and iron ore, have fallen and this week Chinese banks and real estate stocks have been hurt by boycotts of borrowers on unpaid home mortgage payments. Read more
“Overdue mortgages doubled during the week and … potential home buyers are expecting a general fall in home prices for the housing market, including completed projects,” analysts said Thursday of ING in a note to customers.
“This is negative even for cash-rich developers.”
The Chinese yuan was slightly firmer at 6.7664 per dollar. Compared to other currencies, the greenback stabilized after falling earlier in the week. The Australian dollar bought $ 0.68650.
Treasury yields at the 10-year benchmark remained at 3.0508%, a slight rise, but still below the 2-year yield of 3.2380%, a market signal that often portends a recession.
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Additional report by Tom Westbrook, Editing by Sam Holmes, Kim Coghill and Nick Macfie
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