(Bloomberg) – European stocks rallied as investors took some comfort from assurances from the Italian government that a new unexpected tax on banks would be capped.
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UniCredit SpA and Intesa Sanpaolo SpA, which were the focus of Tuesday’s declines as the new tax was introduced, were among the biggest gainers on Wednesday, boosting the Stoxx Europe 600 by as much as 1% on Wednesday.
Other markets were more risk-on: the euro strengthened, copper rallied and a rise in US futures indicated a recovery on Wall Street.
The improving sentiment faces a major test on Thursday when the latest US CPI is released. A closely watched indicator of bond market inflation expectations is back to a nine-year high, suggesting years of heightened price pressures.
The “inflation report will be critical if today’s rally is to continue,” said Lewis Grant, a senior portfolio manager at Federated Hermes. “Investor risk aversion has started to wane but remains volatile and investors are anxiously searching for the next signal.”
The inflation gauge on the bond market shows doubts about the Fed’s quick victory
The so-called five-year breakeven inflation rate in the US has risen to around 2.5%, just below the peak in April 2022, when it was the highest since 2014.
Thursday’s results are expected to show that consumer prices rose 3.3% yoy in July, up slightly from the previous month but still near the slowest pace in two years.
Meanwhile, 10-year government bond yields rose ahead of another closely watched bond auction today. The US government is expected to sell $38 billion worth of new 10-year bonds, up $3 billion from the last 10-year bond issued in May.
The debt auctions will show how worried investors are about a rising US budget deficit, a week after Fitch Ratings decided to strip the US of its top credit rating. The sale of $42 billion in three-year notes on Tuesday had a lower-than-expected yield, a sign that demand was stronger than expected.
The story goes on
Company highlights:
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The majority shareholder of L’Occitane International SA is in advanced talks over a potential deal to privatize the skincare company, valued at around $6.5 billion.
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Country Garden Holdings Co.’s potential default at the end of 2021 could even dwarf that of China Evergrande Group, according to Bloomberg Intelligence.
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Walt Disney Co.’s ESPN has signed a long-term exclusive sportsbook partnership with Penn Entertainment Inc., a regional casino operator.
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WeWork Inc. shares fell in after-hours trading after the company said it had “significant doubts” about its ability to continue operations, citing ongoing losses and canceled memberships at its offices.
Important events this week:
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Rate decision for India, Thursday
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US Initial Jobless Claims, CPI, Thursday
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Atlanta Fed President Raphael Bostic pretaped his remarks for Thursday’s jobs webinar
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UK Industrial Production, GDP, Friday
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US University of Michigan Consumer Sentiment, PPI, Friday
Some of the key movements in the markets:
Shares
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S&P 500 futures were up 0.1% as of 7:29 a.m. New York time
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Nasdaq 100 futures were little changed
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Futures on the Dow Jones Industrial Average hardly changed
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The Stoxx Europe 600 rose 0.8%
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MSCI World Index up 0.2%
currencies
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The Bloomberg Dollar Spot Index is little changed
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The euro rose 0.2% to $1.0974
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The British pound fell 0.1% to $1.2732
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The Japanese yen was unchanged at 143.38 per dollar
cryptocurrencies
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Bitcoin fell 0.6% to $29,811.4
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Ether fell 0.2% to $1,860.26
Bind
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The 10-year government bond yield rose two basis points to 4.04%
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The 10-year German government bond yield rose three basis points to 2.50%
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The 10-year UK government bond yield rose two basis points to 4.41%
raw materials
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West Texas Intermediate crude rose 1.4% to $84.06 a barrel
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Gold futures fell 0.1% to $1,957.80 an ounce
This story was created with the support of Bloomberg Automation.
– With support from Sagarika Jaisinghani, Michael Mackenzie and Denitsa Tsekova.
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