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The flow of Russian gas lifted the euro ahead of the ECB meeting on the rate

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  • The resumption of gas supplies to Russia raised the euro
  • ECB intends to raise rates by at least 25 basis points
  • ECB interest rate decision due at 12:15 GMT
  • U.S. crude oil prices trade below $100 a barrel

LONDON, July 21 (Reuters) – Stock markets tumbled on Thursday as the resumption of Russian gas supplies to Europe lifted the euro ahead of an expected first rate hike by the European Central Bank in more than a decade to curb inflation.

The flow of Russian gas to Germany has resumed after a 10-day hiatus to ease concerns about supplies to Europe for now, helping ease concerns about the economic impact. read more

The euro edged higher, further off last week’s parity against the US dollar, as the recovery was buoyed by expectations that the ECB could hike rates by 50 bps.

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Russian President Vladimir Putin has warned that supplies could be reduced or even cut off, prompting the EU to order its members to reduce usage.

“European markets will be pulled and pushed by Putin’s mood,” said Michael Hewson, chief market strategist at CMC Markets.

Markets are anticipating how much the ECB will raise interest rates later at 1215 GMT on Thursday, Hewson said, with an increase of 25 basis points already. read more

Traders are also waiting for details on the ECB’s tool to contain the stress in the bond markets, which is made even more urgent by the collapsing government of Italy, one of the euro zone’s most indebted countries.

Italian spreads and debt/GDP

Rate hikes by the US Federal Reserve next week and by the Bank of England in August are also expected by now, Hewson said.

The STOXX (.STOXX) 600 European Index was down 0.4%. The MSCI All-Country Index (.MIWD00000PUS) was down 0.14%.

Italian bonds fell sharply after the collapse of the government of Mario Draghi in the eurozone’s third-largest economy. read more

Nadej Dufosse, head of cross-asset strategy at Candriam, said the political turmoil in Italy is putting more pressure on the ECB to have its so-called anti-fragmentation tool in place to limit bond yields and calm markets.

“I think they will have to meet this point, I think that is the main risk today. It must convince investors that it will be effective,” Dufoss said.

After the latest round of rate hikes, investors will be trying to assess whether the economy is heading for a soft or hard landing as higher borrowing costs are covered, she said.

“Expectations for the fourth quarter or next year can really set the trend in the market. We don’t have an answer yet and we just have to be very pragmatic,” Dufosse said.

Contrary to this trend, the Bank of Japan on Thursday, as expected, left monetary policy unchanged and slightly raised its inflation forecasts. The yen remained stable at 138.37 per dollar. read more

Nasdaq 100 futures fell 0.25% and S&P 500 futures fell 0.2%. Earnings from Blackstone, Dow Chemical, Philip Morris International, Twitter and American Airlines were due Thursday.

CHINESE CLOUDS

Wall Street indexes rose overnight, but even higher-than-expected after-hours results from Tesla failed to carry over into the Asian session. read more

The broadest MSCI index for Asia-Pacific equities outside of Japan (.MIAPJ0000PUS) fell 0.1%, while Japan’s Nikkei (.N225) gained 0.4%.

Clouds surrounding China’s rise due to its strict COVID-19 control and new concerns over a ailing real estate market are also clouding the outlook for global demand.

Growth-sensitive commodities such as copper and iron ore are down, and Chinese banks and real estate stocks have been hurt this week as borrowers boycotted mortgage payments on unfinished homes. read more

“Delinquent mortgages have doubled in a week and … potential homebuyers are waiting for a general drop in home prices in the housing market, including completed projects,” ING analysts said in a note to clients on Thursday.

“It’s negative even for wealthy developers.”

The Chinese yuan strengthened slightly at 6.7664 per dollar. Against other currencies, the dollar has stabilized after falling earlier in the week. The Australian dollar bought $0.68650.

The underlying yield on the 10-year Treasury held at 3.0415%, below the 2-year yield of 3.2359%, a market signal that often heralds a recession.

Oil prices fell for a second straight session as concerns about demand outweighed tight global supply after US government data showed modest gasoline consumption during the peak of the summer driving season.

Brent crude fell 2.25% to $104.50 a barrel, while US West Texas Intermediate oil fell 2.6% to $97.32 a barrel.

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Additional reporting by Tom Westbrook, editing by Sam Holmes, Kim Coghill and Nick McPhee.

Our Standards: Thomson Reuters Trust Principles.

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