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Caution in sight in Europe before the ECB, politics should weigh in Milan


by Laetitia Volga

PARIS (Reuters) – The main European stock markets are expected on a hesitant note at the opening on Thursday, with caution discouraging risk-taking a few hours before announcements from the European Central Bank as the political crisis in Italy escalates. but that of energy seems to subside.

Futures contracts give an increase of 0.02% for the Parisian CAC 40, 0.2% for the Dax in Frankfurt, 0.2% for the FTSE in London and 0.08% for the EuroStoxx 50 .

The Milan Stock Exchange is indicated down 2.3% after the abstention of three formations of the government coalition in Italy during the vote of confidence in the Senate requested by Mario Draghi, which should lead the President of the Council to resign and lead to early elections.

The Italian political chaos comes at the worst time for the ECB, which is expected to announce at 12:30 GMT its first rate hike since 2011 and could unveil the outlines of its new anti-fragmentation tool, intended to contain the borrowing costs of the most indebted countries of the euro zone, including those of Italy.

ECB President Christine Lagarde had indicated that rates would be raised by 0.25%, and this remains the preferred option for the markets, but recent information indicates that the institution’s governors will discuss a possible half a point increase in the face of accelerating inflation.

“In the medium term, the question of the size (of the rise in rates) is trivial. We consider that the ECB is lagging behind the economic cycle (…) It is obvious that the economy of the euro zone is slowing down strongly. We consider that the ECB has until the end of the year to tighten its monetary policy before it is forced to take a break. The challenge of today’s meeting is above all to have a little visibility on the calendar for the next few months and not so much to comment on the magnitude of the rate hike (which will, in any case, be very insufficient to combat inflationary pressures)”, commented Saxo Bank in a note.

The other topic of the day is the resumption of Russian gas deliveries to Europe via Nord Stream 1, the prospect of a prolonged shutdown of this essential gas pipeline having raised fears of an aggravation of the energy crisis. According to the operator’s spokesperson, flows are resuming after ten days of maintenance.

RATE

In early trading, the ten-year spread between Germany and Italy jumped to 240 basis points, the highest level in a month. The ten-year Italian BTP yield takes 20 basis points to 3.67%, a peak since June 28.

The ten-year German posted a slight decline to 1.258%.

On the US bond market, the yield on ten-year Treasuries stands at 3.049%.

VALUES TO FOLLOW:

AT WALL STREET

The New York Stock Exchange ended higher on Wednesday as investors were relieved by strong corporate results, seen as positive signals for the economy, while keeping an eye on inflation and policy tightening monetary policy of the Fed.

The Dow Jones index gained 0.15% to 31,874.84 points, the S&P-500 gained 0.59% to 3,959.90 points and the Nasdaq Composite advanced 1.58% to 11,897.65 points.

Netflix jumped 7.4% after saying it expected a return to growth in its number of subscribers in the third quarter, after a less significant decline than expected in its number of customers over the April-June period.

Other high-growth stocks rose in the wake of the online video giant’s announcement: Apple, Amazon, Microsoft and Meta Platforms recorded gains ranging from 1% to 4.2%.

Tesla posted a smaller-than-expected decline in quarterly profit after the close as higher prices for electric vehicles helped offset production difficulties caused by COVID-19 in China. In pre-market trading, it gains 1.5%.

US “futures” suggest a session without much change on Thursday.

IN ASIA

The Nikkei in Tokyo (+0.44%) ended in the green for the sixth session in a row but the rise was limited ahead of the ECB meeting.

The Bank of Japan, for its part, decided to raise its inflation forecasts but maintained its ultra-accommodating monetary policy and warned of the risks weighing on the economy.

In China, the CSI 300 large-cap index lost 0.47% on continued concerns over the COVID-19 outbreak.

CHANGES

On the currency market, the dollar is down slightly against a benchmark basket.

The euro gained 0.38% to $1.0216 as traders braced for the ECB’s first rate hike since 2011 and the reopening of the Nord Stream 1 gas pipeline.

Bitcoin fell 1.27% against the greenback after Tesla announced it was converting 75% of its bitcoin holdings into fiat currency, with company chief executive Elon Musk citing uncertainty over the crisis health in China and its impact on production levels.

OIL

The oil market is giving ground as concerns about demand outweigh those about insufficient supply after figures from the US Energy Information Agency showed gasoline inventories rising much higher than expected last week (3.5 million barrels against 71,000 expected by the Reuters consensus).

Brent fell 0.26% to 106.64 dollars a barrel and US light crude (West Texas Intermediate, WTI) 0.44% to 99.44 dollars.

MAIN ECONOMIC INDICATORS ON THE AGENDA FOR JULY 21:

COUNTRY GMT INDICATOR PERIOD PREVIOUS CONSENSUS

FR 06:45 July climate index 106 108

business

USA 12:30 p.m. Unemployment claims week at 240,000 244,000

July 16

USA 12:30 p.m. Activity index July 0.0 -3.3

Philly Fed

(Written by Laetitia Volga, edited by Bertrand Boucey and Kate Entringer)



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