By Tom Arnold
LONDON (Reuters) – European stocks opened higher on Wednesday as hopes of more monetary and fiscal stimulus helped quell concerns about global recession, political turmoil in Italy and endless trade wars.
Traders are waiting for the Federal Reserve's annual JacksonHole symposium later this week and a group at the seven summit this weekend with clues as to what steps politicians will take to boost economic growth.
Much depends on what the Fed does with US interest rates, making the markets hyper-sensitive to the minutes ̵
"People are looking forward to Jackson Hole later this week and the message that [Fed Chairman] Jerome Powell may or may not give us the direction of monetary policy. It's the highlight of the week, and we're waiting with bait in the spirit," Andrew said Milligan, Head of Global Strategy at Aberdeen Standard Investments.
Futures is fully priced for one quarter point in interest rates next month and cut by more than 100 basis points by the end of next year.
Morgan Stanley (NYSE 🙂 economist Ellen Zentner urged clients to look for the use of the word "something" when Powell describes future policy.
"Recognition that the downside risk has increased without characterizing" anything "can be taken as confirmation that there is likely to be a major cut in September," Zentner wrote in a note.
With so much riding on the Fed, investors were cautious and volumes muted. Euro was 0.6% higher, and Italy outperformed a routine yesterday following the resignation of Italian Prime Minister Giuseppe Conte.
Shares in the listed Fiat Chrysler climbed 3.1% after Italian media reported that talks between Fiat and Renault (PA 🙂 never stopped. That put the STOXX 600 Autos index on track for its best day in a month.
GEA Group, a German food processing company, and the outsourcing group Capita gained more than 5% after Goldman Sachs (NYSE 🙂 upgraded its stock rating.
President Donald Trump showed no signs of backing up his tussle with China, declaring Tuesday that a confrontation was necessary, even though it hurt the US economy in the short term.
Shortly thereafter, the US government approved the $ 8 billion sale of Lockheed Martin (NYSE 🙂 F-16 fighter jets to Taiwan, a move that is sure to draw Beijing's ire and further dampen the prospects of a trade deal.
Political unrest in Italy, the United Kingdom and Hong Kong has also increased uncertainties.
Italian bond yields steady after falling on Tuesday, as Italian President Sergio Mattarella begins two days of talks that will lead to the formation of the country's 67th government since World War II or early elections.
Germany's bond yields rose before the sale of new 30-year government bonds that could test the investor's demand for deeply negative bond yields. Germany plans to sell € 2 billion of the new bond, with a coupon of 0%.
Alarm bells started ringing last week as the yield on US-10 year notes fell below two-year returns for the first time since 2007, an inversion that has preceded previous declines. That was enough to get the Trump administration to look for ways to stimulate the US economy.
In addition, all central banks in the eurozone, Australia and China are expected to loosen monetary policy somewhat more this year. Germany assesses fiscal stimulus.
These prospects have driven lower returns. Benchmark U.S. 10-year government yields stood at 1.57% on Wednesday, down from a high of 1.625% on Monday.
Foreign exchange markets were largely subdued. The euro was last down 0.1% to $ 1.1092. The dollar, measured against a basket of currencies, rose 0.1% to 98,265.
Sterling was down 0.3% to $ 1.2134 and 0.2% against the euro at 91405 pence.
In commodity markets, 17 cents rose to $ 56.30 a barrel. added 23 cents to $ 60.26.
was weaker at $ 1,498.15 an ounce.