LONDON, July 18 (Reuters) – Global stock markets got off to a steady start on Monday and the euro retreated from parity as market participants cut bets on a Federal Reserve rate hike next week and optimism fueled by the central bank’s pledges to support of the Chinese economy.
U.S. stock futures rose more than 1 percent, while European stock indexes were a sea of green in a big week for the region.
The European Central Bank will raise interest 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 again in the grip of a political crisis. Read more
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The pan-European STOXX 600 index (.STOXX) rose 1.3 percent by 1030 GMT, after falling 0.8 percent last week. Monday’s gains were broad-based and led by miners (.SXPP), energy stocks (.SXEP) and banks (.SX7P).
“It’s been a wild week, so much going on,” said James Rossiter, senior global strategist at TD Securities.
“The ECB is a huge focus, there’s not much room for the ECB to surprise, 25bps is locked in I think… and then there’s Italy and Nord Stream as well.”
Italy’s borrowing costs rose on Monday and investors’ demand for a premium to hold Italian debt over safer German bonds hit a one-month high as political turmoil in Europe’s fourth-largest economy continued.
Prime Minister Mario Draghi tried to resign from his post on Thursday after the 5 Star Movement, a coalition partner, failed to support him in a confidence vote. Draghi’s resignation was rejected by the Italian president. Read more
Draghi is expected to address parliament on Wednesday, but the yield on Italy’s 10-year bond rose 10 basis points (bps) on Monday to 3.48%, pushing the closely watched spread over the German Bund’s yield to its widest ever from over a month to about 235 bps.
“We expect volatility to remain high until then in response to various rumors about whether he will remain firm on his resignation or whether he wishes to stay put,” UniCredit analysts said in a note.
“Any indication that could increase the likelihood of a snap election would ultimately be negative for BTP and lead to a wider spread.”
Overnight, a gauge of Asian shares ( .MIAPJ0000PUS ) rose more than 1 percent, the biggest daily gain in nearly two months, boosted by a jump in Chinese shares as regulators encouraged lenders to lend to qualified real estate projects.
It also came after the greenback, which had its strongest start to the year in recent memory, edged lower on Monday. /FRX
Uncertainty will haunt the ECB at a policy meeting where it is likely to start a tightening cycle with a hike of 25 basis points, with markets hanging on the details of an anti-fragmentation tool designed to ease pressure on borrowing costs for the union’s most indebted members. Read more
Friday’s rally on Wall Street reverberated across global markets, with MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) up 1.4 percent, after losing 3.5 percent last week.
A broader index of global shares (.MIWO00000PUS) rose 0.4%.
Chinese blue chips (.CSI300) added 1.0% as the country’s central bank chief pledged to help the economy, even as Shanghai also announced more coronavirus testing across the region. Read more
Traders returned to expectations of a 75 basis point interest rate hike from the Federal Reserve next week after flirting with the prospect of a 100 basis point move to tame inflation.
“We do not believe that central banks will be able to raise interest rates to the extent that they or market forecasts have given the headwinds of already slowing economic growth,” said Steve Ellis, global CIO of Fidelity International.
Corporate earnings will be in focus this week with 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 ) are due to report.
Of the 35 companies in the S&P 500 that reported, 80% beat analysts’ expectations, according to Refinitiv. Analysts now expect total annual profit growth in the second quarter of 5.6%, up from 6.8% at the start of the quarter.
Rising interest rates and a strong dollar were a major drag on unearned gold, which remained at $1,713 an ounce after losing 2% last week.
Oil prices rose on the wave of risk. President Joe Biden continued his trip to the Middle East in hopes of getting a deal to boost production after appearing to leave Saudi Arabia empty-handed.
After early declines, Brent crude added $2.54, or 2.5%, to $103.70 a barrel, after rising 2.1% on Friday.
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Additional reporting by Mark Jones in London; editing by Kirsten Donovan and Bernadette Baum
Our standards: The Thomson Reuters Trust Principles.
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