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The
flow of Russian gas resumed to Germany after a 10-day outage,
easing fears of a potential blow to the European economy if gas
supplies have to be rationed. (Full Story) (Full Story)
After an early wobble following the resignation of Italian Prime
Minister Mario Draghi, the euro EUR=EBS edged up, distancing
itself further from last week's parity against the greenback and
bolstered by expectations the ECB might deliver a big 50
basis-point rate hike.
Russian President Vladimir Putin has warned that gas supplies
could be reduced further or even stop, prompting the EU to tells
its members to cut usage.
"European markets are going to be pulled and pushed by Putin's
mood," said Michael Hewson, chief markets strategist at CMC
Markets.
Markets are looking to see how much the ECB will raise interest
rates later at 1215 GMT on Thursday, with a 25 basis point (bps)
hike already priced in, Hewson said. (Full Story)
Traders also await 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 euro zone's most indebted countries. FRX/
(GRAPHIC: Italian spreads and debt/GDP -
https://fingfx.thomsonreuters.com/
gfx/mkt/myvmnljwdpr/Four.PNG)
Rate hikes from the U.S. Federal Reserve next week and from the
Bank of England in August are also well anticipated by now,
Hewson said.
The STOXX index .STOXX of 600 European companies was up 0.18%,
recovering from the morning's losses as U.S. stock index futures
moved higher. The MSCI All-Country stock index .MIWD00000PUS was
flat.
Italian bonds IT10YT=RR sold off sharply following the collapse
of Mario Draghi's government in the euro area's third biggest
economy.
The Italian banks index .FTITLMS3010, a sector sensitive to
political crises, fell 4%.
Nadege Dufosse, head of cross-asset strategy at Candriam, said
political turmoil in Italy is putting more pressure on the ECB
to have its so-called anti-fragmentation tool in place to cap
bond yields and reassure markets.
"I think they will have to deliver on that point, I think it's
the main risk today. It must convince investors that it will be
efficient," Dufosse said.
After the latest series of rate hikes, investors will be trying
to gauge whether the economy is headed 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 trend in the market. For now we do not
have the answer and we just have to be very pragmatic," Dufosse
said.
Bucking the trend, the Bank of Japan left its super-loose
monetary policy unchanged on Thursday, as expected, and raised
its inflation forecasts a little bit. The yen JPY=EBS held
steady at 138.37 per dollar. (Full Story)
Nasdaq 100 futures NQc1 were up 0.15%, with S&P 500 futures
EScv1 pared nearly all of their earlier losses. Earnings from
Blackstone, Dow Chemical, Philip Morris International, Twitter
and American Airlines were due on Thursday.
CRUDE EXTENDS LOSSES
Oil prices fell for a second straight session, as demand
concerns outweighed tight global supply after U.S. government
data showed tepid gasoline consumption during the peak summer
driving season.
Brent crude LCOc1 was down 4% at $102.63 a barrel, while U.S.
West Texas Intermediate CLc1 dropped 4% to $95.72 a barrel.
Wall Street indexes rallied overnight but even
better-than-expected results from Tesla TSLA.O after hours
couldn't carry the positive mood into the Asia session.
MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS fell 0.1% and Japan's Nikkei .N225 gained 0.4%.
A cloud over Chinese growth due to its strict COVID-19 controls
and more trouble in its ailing property market is also casting
gloom over the prospects for global demand.
Growth-sensitive commodities such as copper SCFc1 and iron ore
SZZFc1 have been sliding and this week Chinese banks and
property stocks have been hurt by borrowers boycotting mortgage
payments on unfinished homes. (Full Story)
"Past due mortgages doubled over the week, and ... potential
home buyers are waiting for a general drop in home prices for
the housing market, including completed projects," ING analysts
said in a note to clients on Thursday.
"This is negative even for cash-rich developers."
China's yuan CNY=CFXS was slightly firmer at 6.7664 to the
dollar. Against other currencies the greenback steadied after
dipping earlier in the week. The Australian dollar AUD=D3 bought
$0.68650.
The benchmark 10-year Treasury yield US10YT=RR held at 3.0508%,
up slightly, but still below the 2-year yield US2YT=RR of
3.2380%, a market signal that often presages a recession. US/
(Additional reportig by Tom Westbrook, Editing by Sam Holmes,
Kim Coghill and Nick Macfie)
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