Since U.S. Federal Reserve officials are indicating that they will only raise interest rates by 75 basis points at their meeting on July 26 and 27, instead of the 100 basis points that some people were expecting, the markets are in a pretty good mood. Both the U.S. and European stock markets are expected to open stronger.
So now two big events in Europe are getting more market attention.
First, on July 21, will Russia start sending gas through the Nord Stream 1 pipeline again? Without a significant return of flows, gas prices will rise, forcing Germany and other countries to ration fuel, almost certainly causing the economy to enter a slump.
A big question mark hangs over gas supplies before the European Central Bank’s meeting on Thursday. At that meeting, the bank should raise interest rates for the first time in more than ten years.
But the expected 25 bps move by the ECB is small compared to recent rate hikes by its peers in other countries. For example, Canada raised rates by 100 bps, and Switzerland may raise rates by 50 bps in September.
The ECB’s plans to raise interest rates and the details of its “anti-fragmentation” tool will be of more interest.
The last one will be especially interesting because it aims to keep southern European countries like Italy, which is in a lot of political trouble right now, from having to pay too much to borrow money.
Even though the dollar index is close to a 20-year high, investors are still not sure what the future holds for global markets. The yields on U.S. Treasury bonds are a little bit lower now that COVID-19 infections are spreading in a few big cities in China.
One thing that’s going well is that companies are still making money. Refinitiv says that, of the 35 S&P 500 companies that have reported earnings for the second quarter, 80% have done better than expected. Citibank said that its earnings indicators don’t show a “meaningful” drop in earnings around the world.
Key events that should give the markets more direction on Monday:
China is doing more to help developers get loans.
HSBC will leave non-core markets faster and put more money to work in Asia.
New Zealand’s inflation has reached a 30-year high.
In the United Kingdom, asking prices for homes rise 9.3 percent in a year.
The Finnish bank, Nordea, makes more money than expected.
France, Germany, the Netherlands, and Belgium all have debt auctions.
Graphic: http://fingfx.thomsonreuters.com/gfx/mkt/egpbkxjaavq/euro%20and%20dutch.JPG