Stock markets and the euro held firm on Thursday as investors’ nerves were soothed by the resumption of Russian gas supplies to Europe as they awaited what is expected to be the Bank’s first interest rate hike. European powerhouse in 11 years.
The flow of Russian gas has resumed to Germany after a 10-day blackout, easing fears of a potential hit to Europe’s economy if gas supplies were to be rationed. After an initial wobble following the resignation of Italian Prime Minister Mario Draghi, the euro edged higher, moving further away from last week’s parity with the greenback and buoyed by expectations that the ECB could proceed with a sharp rise in rates of 50 basis points.
Russian President Vladimir Putin has warned that gas supplies could be further reduced or even stopped, prompting the EU to ask its members to reduce their consumption. “European markets are going to be pulled and pushed by Putin’s mood,” said Michael Hewson, chief market strategist at CMC Markets.
Markets are looking to see how much the ECB will raise interest rates later at 12:15 GMT on Thursday, with a 25 basis point (bp) hike already priced in, Hewson said. Traders are also awaiting details of an ECB tool to contain stress in bond markets, made all the more urgent by a crumbling government in Italy, one of the euro zone’s most indebted countries.
Rate hikes by the US Federal Reserve next week and by the Bank of England in August are also well anticipated now, Hewson said. The STOXX index of 600 European companies rose 0.18%, recovering from morning losses as U.S. stock index futures rose. The MSCI All-Country Stock Index remained flat.
Italian bonds sold off sharply following the collapse of Mario Draghi’s government in the euro zone’s third-largest economy. The index of Italian banks, a sector sensitive to political crises, fell 4%.
Nadege Dufosse, head of multi-asset strategy at Candriam, said political unrest in Italy put more pressure on the ECB to implement its so-called anti-fragmentation tool to cap bond yields and provide reassurance. the steps. “I think they’ll have to deliver on that, I think that’s the main risk today. You have to convince investors that it will be effective,” Dufosse said.
After the latest round of rate hikes, investors will try to gauge whether the economy is heading for a soft or hard landing as higher borrowing costs are absorbed, she said. “It’s the expectations for the fourth quarter or next year that can really determine the market trend. Right now we don’t have the answer and we just have to be very pragmatic,” Dufosse said.
Bucking the trend, the Bank of Japan left its super accommodative monetary policy unchanged on Thursday, as expected, and raised its inflation forecast slightly. The yen remained stable at 138.37 per dollar. Nasdaq 100 futures rose 0.15% as S&P 500 futures pared nearly all of their prior losses. Earnings from Blackstone, Dow Chemical, Philip Morris International, Twitter and American Airlines were expected on Thursday.
CRUDE EXTENDS LOSSES Oil prices fell for a second straight session as demand concerns outweighed tighter global supply after U.S. government data showed lukewarm gasoline consumption during the peak summer driving season.
Brent crude fell 4% to $102.63 a barrel, while U.S. West Texas Intermediate fell 4% to $95.72 a barrel. Wall Street indices rallied overnight, but even Tesla’s better-than-expected after-hours results couldn’t bring the positive mood to the Asian session.
MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.1% and the Japanese Nikkei gained 0.4%. A cloud over China’s growth due to its tight COVID-19 controls and more problems in its struggling real estate market is also clouding the outlook for global demand.
Growth-sensitive commodities such as copper and iron ore have fallen and this week Chinese banks and property stocks have been hit by borrowers’ boycotts of mortgage payments on unfinished homes. “Overdue mortgages have doubled over the week, and … potential buyers are expecting a general drop in house prices for the housing market, including completed projects,” ING analysts said in a statement on Thursday. note to customers.
“It’s negative even for cash-rich developers.” The Chinese yuan was slightly firmer at 6.7664 to the dollar. Against other currencies, the greenback stabilized after falling earlier in the week. The Australian dollar bought $0.68650.
The benchmark 10-year Treasury yield held steady at 3.0508%, up slightly but still below the 2-year yield of 3.2380%, a market signal that often portends a recession. (Additional reporting by Tom Westbrook, editing by Sam Holmes, Kim Coghill and Nick Macfie)
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