- Resuming gas flows in Russia eases investor fears
- The European Central Bank is set to raise interest rates by at least 25 basis points
- European Central Bank interest rate decision at 1215 GMT
- Crude Oil Falls as Higher Interest Rates Fuel Demand Concern
- Italian Prime Minister Draghi resigns, hitting the banks
LONDON (Reuters) – Stock markets and the euro held firm on Thursday as investor nerves settled as Russian gas supplies resumed to Europe as they awaited what is expected to be the European Central Bank’s first rate hike in 11 years.
Russian gas flows to Germany have resumed after a 10-day break, easing fears of a possible blow to the European economy if gas supplies are to be rationed. Read more
After early volatility in the wake of Italian Prime Minister Mario Draghi’s resignation, the euro rose, pulling itself off parity last week against the dollar, buoyed by expectations that the European Central Bank could raise interest rates by 50 basis points.
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Russian President Vladimir Putin has warned that gas supplies could be further reduced or stopped, prompting the European Union to tell its members to cut off use.
“European markets will be affected and driven by Putin’s mood,” said Michael Hewson, chief markets strategist at CMC Markets.
Hewson said markets are looking to see how much the European Central Bank will raise interest rates later at 1215 GMT on Thursday, with a 25 basis point rate hike already. Read more
Traders are also awaiting details of the European Central Bank’s tool to contain pressure in bond markets, which has been made more pressing by the collapse of the government in Italy, one of the most indebted eurozone countries.
Hewson said rate hikes from the US Federal Reserve next week and the Bank of England in August are now well expected.
STOXX . indicator (.stoxx) It rose 0.18% from 600 European companies, recovering from morning losses as US stock index futures rose. MSCI All-Country Stock Index (.MIWD00000PUS) It was flat.
Italian bonds sold off sharply in the wake of the collapse of Mario Draghi’s government in the eurozone’s third largest economy. Read more
Italian Banks Index (.FTITLMS3010)It is a sector sensitive to political crises at 4%.
Nadege Dufosse, head of cross-asset strategy at Candriam, said the political turmoil in Italy is putting more pressure on the European Central Bank to put in place a so-called anti-retail tool to limit bond yields and reassure markets.
“I think they’re going to have to meet that point, and I think it’s the main risk today,” Dufus said. “You have to convince investors that it’s going to be effective.”
She said that after the latest series of interest rate increases, investors will try to gauge whether the economy is heading for a soft or hard landing while absorbing higher borrowing costs.
“It’s the outlook for the fourth quarter or next year that can determine the prevailing trend in the market,” Dufus said. “At the moment we don’t have the answer and we just have to be very realistic.”
Contrary to this trend, the Bank of Japan left its ultra-accommodative monetary policy unchanged on Thursday, as expected, and raised inflation expectations slightly. The yen settled at 138.37 against the dollar. Read more
Nasdaq 100 futures rose 0.15%, as S&P 500 futures trimmed nearly all of their previous losses. Earnings from Blackstone, Dow Chemical, Philip Morris International, Twitter and American Airlines were due on Thursday.
Crude prolongs losses
Oil prices fell for the second consecutive session, as demand concerns overshadowed tight global supply after US government data showed tepid gasoline consumption during the peak summer driving season.
Brent crude fell 4% to $102.63 a barrel, while US West Texas Intermediate crude fell 4% to $95.72 a barrel.
Wall Street indices rose overnight but Tesla’s results are better than expected (TSLA.O) After hours could not stand the positive mood in the Asian trading session. Read more
MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) Japan’s Nikkei fell 0.1%. (.N225) 0.4% profit.
A cloud over Chinese growth due to its strict coronavirus controls, and more troubles in the faltering real estate market are also clouding the outlook for global demand.
Growth-sensitive commodities such as copper and iron ore fell, and Chinese banks and real estate stocks were hit this week as borrowers boycotted mortgage payments on unfinished homes. Read more
“Overdue home loans doubled during the week… Potential home buyers are waiting for an overall decline in home prices in the housing market, including completed projects,” ING analysts said in a note to clients on Thursday.
“This is a negative even for rich developers.”
The Chinese yuan rose slightly at 6.7664 to the dollar. The dollar was stable against other currencies after falling earlier in the week. The Australian dollar bought 0.68650 dollars.
The benchmark 10-year Treasury yield was flat at 3.0508%, up slightly, but still below the two-year yield of 3.2380%, an often recessionary market signal.
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Additional reporting by Tom Westbrook, Editing by Sam Holmes, Kim Coogill and Nick McPhee
Our criteria: Thomson Reuters Trust Principles.
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