Russian gas flow lifts euro ahead of ECB rate meeting

  • Resumption of gas flows in Russia drives the euro higher
  • ECB set to hike rates by at least 25 basis points
  • ECB rate decision expected at 12:15 GMT
  • US crude oil prices are trading below $100 a barrel

LONDON, July 21 (Reuters) – Stock markets eased on Thursday as the resumption of Russian gas supplies to Europe pushed the euro higher ahead of the European Central Bank’s first planned interest rate hike. for more than a decade to curb inflation.

The flow of Russian gas has resumed to Germany after a 10-day blackout to ease Europe’s supply concerns for now, helping to ease worries about the fallout on the economy. Read more

The euro edged higher, moving further away from last week’s parity against the greenback, as the rally was bolstered by expectations that the ECB might proceed with a significant 50 basis point rate hike.

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Russian President Vladimir Putin has warned that supplies could be further reduced or even stopped, prompting the EU to tell its members to reduce their use.

“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 hike already forecast, Hewson said. Read more

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 eurozone’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 well anticipated now, Hewson said.

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

Italian bonds sold off sharply following the collapse of Mario Draghi’s government in the eurozone’s third-largest economy. Read more

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.

Against the trend, the Bank of Japan left its monetary policy unchanged on Thursday, as expected, and raised its inflation forecast slightly. 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 expected on Thursday.

CLOUDS OF CHINA

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. Read more

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.1% and the Japanese Nikkei (.N225) gained 0.4%.

A cloud over China’s growth due to its tight COVID-19 controls and renewed concerns over the 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. Read more

“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 3.0415%, 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 demand worries outweighed tight global supply after U.S. government data showed tepid gas mileage during the peak summer driving season.

Brent crude fell 2.25% to $104.50 a barrel, while U.S. West Texas Intermediate 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 Macfie

Our standards: The Thomson Reuters Trust Principles.

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