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Stocks rise, euro up a few inches in big week for markets

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LONDON, July 18 (Reuters) – Global stock markets got off to a strong start on Monday and the euro pulled back from parity as market participants cut bets on next week’s Federal Reserve rate hike and on optimism fueled by central bank pledges to support China’s economy.

US stock futures rose more than 1%, while European stocks were in a green sea in a crucial week for the region.

The European Central Bank is set to raise rates for the first time in more than a decade on Thursday, the same day the bloc hopes Russia will resume gas supplies. Meanwhile, Italy is once again in the grip of a political crisis. read more

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The pan-European STOXX 600 (.STOXX) rose 1.3% by 1030 GMT after falling 0.8% last week. Gains on Monday were overall and led miner stocks (.SXPP), energy stocks (.SXEP) and banks (.SX7P).

“This week has been wild with so much going on,” said James Rossiter, senior global strategist at TD Securities.

“The ECB is in the spotlight, the ECB doesn’t have many opportunities to surprise, I think 25 basis points are locked… and then there’s Italy and Nord Stream.”

Borrowing costs in Italy rose on Monday, and premium investor demand to hold Italian debt over safer German bonds was the highest in a month as political instability in Europe’s fourth-largest economy continued.

Prime Minister Mario Draghi tried to resign from his post on Thursday after coalition partner 5 Star Movement failed to support his vote of confidence. The President of Italy rejected Draghi’s resignation. read more

Draghi is expected to address parliament on Wednesday, but Italy’s 10-year bond yield rose 10 basis points (bp) on Monday to 3.48%, pushing the closely watched German bond yield spread to its highest level in a month. about 235 bps.

“We expect volatility to remain high until then in response to various rumors about whether he remains firm on his resignation or whether he is willing to remain in place,” analysts at UniCredit said in a note.

“Any sign that could increase the likelihood of an early election will ultimately be negative for the BTP and lead to a wider spread.”

Overnight, the Asian stock index (.MIAPJ0000PUS) rose more than 1%, its biggest daily gain in almost two months, helped by a surge in Chinese equities as regulators encouraged lenders to lend to related real estate projects.

It also came after the dollar, which had its strongest start to the year in recent memory, slipped on Monday. /FRX

Uncertainty will haunt the ECB in its policy meeting, where it is likely to start a tightening cycle with a 25 basis point gain, with markets hung on the details of an anti-fragmentation tool designed to ease pressure on borrowing costs for the EU’s most indebted. members. read more

Friday’s rally on Wall Street was reflected in global markets, with the broadest MSCI index of Asia-Pacific equities outside of Japan (.MIAPJ0000PUS) up 1.4% after falling 3.5% last week.

The broader global equity index (.MIWO00000PUS) rose 0.4%.

Chinese blue chips (.CSI300) gained 1.0% as the head of the country’s central bank vowed to bail out the economy, although Shanghai also announced more coronavirus tests in the county. read more

Traders returned to expectations of a 75 basis point Federal Reserve rate hike next week after flirting with the prospect of a 100 basis point hike to curb inflation.

“We do not believe that central banks will be able to raise rates to the extent that they or market forecasts are, given the headwinds to an already slowing economic growth,” said Steve Ellis, global CIO fixed income at Fidelity International.

This week the corporate earnings focus will be Goldman Sachs Group Inc (GS.N), Bank of America Corp (BAC.N), International Business Corp (IBM.N), Netflix Inc (NFLX.O), Tesla Inc. O and Twitter Inc (TWTR.N) in connection with the report.

Of the 35 S&P 500 companies that reported, 80% outperformed analysts’ expectations, according to Refinitiv. Analysts now expect second-quarter compound annual earnings growth of 5.6%, up from 6.8% at the start of the quarter.

Rising interest rates and a strong dollar have been a major drag on unprofitable gold, which is stuck at $1,713 an ounce after falling 2% last week.

Oil prices rose on a wave of risk. President Joe Biden continued his trip to the Middle East in hopes of negotiating more production, leaving Saudi Arabia seemingly empty-handed.

After an early fall, Brent crude added $2.54, or 2.5%, to $103.70 a barrel after gaining 2.1% on Friday.

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Supplementary Report by Mark Jones in London; montage by Kirsten Donovan and Bernadette Baum

Our Standards: Thomson Reuters Trust Principles.

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