Trade deal hopes lift Europe ahead of ECB meeting
Reports the European Union and Washington were closing in on 15% tariffs with exceptions for some key sectors came hot on the heels of a deal with Japan and lifted MSCI's broadest index of world equities (.MIWD00000PUS), opens new tab for a seventh straight session.
Tokyo's Nikkei 225 (.N225), opens new tab finished within touching distance of its own all-time high overnight and the bullish mood continued in Europe as Germany's export-reliant DAX (.GDAXI), opens new tab jumped over 1% and the regional STOXX index (.STOXX), opens new tab climbed 0.6%.
Better than expected Deutsche Bank (DBKGn.DE), opens new tab results that sent its shares up over 4% helped lift banking stocks to their highest since the 2008 global crash, although Nestle (NESN.S), opens new tab slumped 4.5% after it posted first-half results and put one of its businesses up for sale.
Focus was already turning to the European Central Bank's pre-summer break meeting where the bank looks set to hit pause after seven straight rate cuts that have halved euro zone rates from 4% to 2% over the last year.
Inflation is now back at the ECB's 2% goal and expected to stay there, and it is hoping the fog hanging over Europe's trade relations with the U.S. is about to clear.
"This one is sure to be a hold, so we are watching what (ECB President) Christine Lagarde says about the economy and the trade negotiations with the U.S.," TD Securities' European macro strategist Julie Ioffe said.
"Right now the talks are definitely not pointing to 10% tariffs - we are expecting between 15-20%, so either way that is above the ECB's base case and will push them towards further cuts," she added, saying a September move was expected.
There was a mixed bag of PMI data too, which showed fragility in France following budget cut proposals there, but also resilience in Germany and other parts of the euro zone that lifted the regional figure to an 11-month high.
The euro dipped 0.1% to $1.1760, although that wasn't far from a more than three-year high of $1.1830 hit earlier this month. Trade hopes also lifted the risk-sensitive Australian dollar to an eight-month high of $0.6625.
Against the yen the dollar fell 0.1% to 146.35, extending its drop to a fourth straight session.
Olivier Korber, an FX strategist at Societe Generale, said he expected the yen to strengthen further, citing support from the trade deal and the possibility of higher Japanese interest rates.
Markets remained relatively relaxed after a surprise White House announcement that Donald Trump, who has been ramping up his attacks on Fed Chair Jerome Powell again in recent weeks, would visit the U.S. central bank's headquarters later.
The purpose of Trump's visit is unclear but it may be a move to pressure Powell and the Fed to cut rates, and it comes just a few days before the next Fed policy meeting at the end of this month, said Vasu Menon, managing director of investment strategy at OCBC.
The yield on benchmark 10-year Treasury notes was broadly steady at 4.3937%, but the EU trade deal talk lifted Germany's 10-year yield 7.5 basis points to 2.674%. That was shaping up to be its biggest rise since mid May.
Wall Street stocks futures pointed to more record highs there later.
Second-quarter earnings are well underway, with 23% of the companies in the S&P 500 having reported. Of those, 85% have beaten Wall Street expectations, according to LSEG data.
In commodity markets, oil prices rose on speculation the various trade deals would support global growth and after a sharper than expected decline in U.S. crude inventories. U.S. crude ticked up 0.52% to $65.59 a barrel.
Gold was slightly lower at $3,370 per ounce as rising appetite for risk in broader markets dented demand for safe-haven assets.
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