GLOBAL MARKETS-European stocks recover before Fed minutes, Jackson Hole gathering

  • Reuters
  • Stock Market News
GLOBAL MARKETS-European stocks recover before Fed minutes, Jackson Hole gathering
Credit: © Reuters.

* Eyes on Fed minutes, Jackson Hole meeting for rate outlook

* Renault , Fiat tie-up hopes boost shares

* U.S. President Trump says he had to 'take China on'

* Euro zone periphery govt bond yields (Updates prices, adds U.S. futures)

By Tom Arnold

LONDON, Aug 21 (Reuters) - European stocks rallied on Wednesday as hopes for more monetary and fiscal stimulus helped assuage worries about global recession, political turmoil in Italy and endless trade wars.

Traders are waiting for the Federal Reserve's annual Jackson Hole symposium later this week and a Group of Seven summit this weekend for clues on what steps policymakers will take to boost economic growth.

Much depends on what the Fed does with U.S. interest rates, making markets hyper-sensitive to the minutes - due later on Wednesday - of its last meeting.

"People are looking ahead to Jackson Hole later this week and the message that [Fed Chairman] Jerome Powell may or may not give us on the direction of monetary policy. That is the highlight of the week and we are waiting with bated breath," said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

Futures 0#FF: are fully priced for a quarter-point cut in rates next month and cuts of more than 100 basis points by the end of next year. FEDWATCH

Morgan Stanley (NYSE: MS ) economist Ellen Zentner advised clients to watch for the use of the word "somewhat" when Powell describes future policy.

"Acknowledgment that downside risks have increased with no characterisation of 'somewhat' could be taken as confirmation that it is likely the Fed makes a larger cut in September," Zentner wrote in a note.

With so much riding on the Fed, investors were cautious and volumes subdued, but gains extended later in the session. The Euro STOXX 600 .STOXX was up 1.1% to its highest since early August, with Italy .FTMIB outperforming after a rout yesterday following the resignation of Italian Prime Minister Giuseppe Conte. in Milan-listed Fiat Chrysler FCHA.MI climbed 4.0% after Italian media reported that talks between Fiat and Renault RENA.PA never stopped. That put the STOXX 600 Autos Index .SXAP on track for its best day in a month. France's CAC 40 Index .FCHI was set for its best day since Aug. 8.

GEA Group G1AG.DE , a German food-processing-machinery company, and outsourcing group Capita CPI.L gained more than 5% after Goldman Sachs (NYSE: GS ) upgraded its rating on the stocks.

In the U.S., stock index futures pointed to a stronger opening, with Dow e-minis 1YMcv1 up 0.65% and S&P 500 e-minis EScv1 0.73% higher.

Upbeat earnings reports from retailers Lowe's Cos Inc LOW.N and Target Corp (NYSE: TGT ) TGT8.N reflected robust consumer demand, helping ease some concern about slowing economic growth. Donald Trump showed no signs of backing down in his tussle with China, declaring on Tuesday a confrontation was necessary even if it hurt the U.S. economy in the short term. afterward, the U.S. government approved an $8 billion sale of Lockheed Martin (NYSE: LMT ) LMT.N F-16 fighter jets to Taiwan, a move sure to draw Beijing's ire and further dim prospects for a trade deal.

Political turmoil in Italy, Britain and Hong Kong has also heightened uncertainties.

Italian bond yields steadied after falling on Tuesday, as Italian President Sergio Mattarella began two days of talks that will lead either to formation of the country's 67th government since World War Two or to early elections.

Germany sold 30-year bonds with a negative yield for the first time at an auction on Wednesday, a milestone for a fixed-income market where the entire curve now yields less than zero. STIMULUS Alarm bells started ringing last week when yields on U.S. 10-year notes fell below two-year yields for the first time since 2007, an inversion that has preceded previous recessions. That was enough to prompt Trump's administration to look for ways to stimulate the U.S. economy addition, the central banks of the euro zone, Australia and China are all expected to further loosen monetary policy this year. Germany is considering fiscal stimulus.

Those prospects have driven yields lower. Benchmark U.S.10-year Treasury yields US10YT=RR stood at 1.57% on Wednesday, down from a high of 1.625% on Monday.

Currency markets were mostly subdued. The euro weakened to $1.1097 EUR=EBS . The dollar, measured against a basket of currencies, rose 0.1% to 98.228 .DXY . was last down 0.4% at $1.2126 GBP=D3 and 0.4% lower versus the euro at 91.52 pence EURGBP=D3 .

In commodities markets, U.S. crude CLc1 rose 72 cents to$56.90 per barrel. Brent LCOc1 added 1.7% to $61.07.

Spot gold XAU= was weaker at $1,498.15 an ounce.

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