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STOXX 600 mostly steady after last week's rout
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Oil and gas stocks boost FTSE
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China inflation data dents luxury retail, chipmakers
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STOXX STABILISES AFTER LAST WEEK'S SLIDE (0808 GMT)
European stocks are getting a little respite in morning trading on Monday, after last week's drubbing took 3.09% off the STOXX 600, making this the largest weekly slide in the index since the banking turmoil in mid-March.
So far, the STOXX is roughly flat on the day, with gains in drugmakers offsetting losses in China-sensitive chipmakers and luxury retailers following data that showed inflation fell in the world's second-largest economy last month.
Novartis, AstraZeneca and are among the biggest weighted gainers on the STOXX, up between 0.5-0.9%, while ASML Holding is down 0.5% and LVMH , Hermes and Richemont are down 0.3-0.9%.
Across the region, the FTSE 100 is up 0.1% thanks to gains in oil producers Shell and Ithaca Energy after a series of broker upgrades, while shares in British landlords are under pressure as two-year fixed mortgage rates hit their highest since last autumn.
Here is your opening snapshot:
(Amanda Cooper)
CHINA DISINFLATION A MIX OF GOOD AND BAD (0642 GMT)
China's inflation data for June surprised on the downside, with consumer prices slipping 0.2% on the month to leave annual CPI dead flat. Producer prices fell 5.4% on the year, the sharpest decline since late 2015.
On the face of it, this implies there is plenty of scope to ease monetary and fiscal policy further. Yet it also underlines the scale of the challenge that Beijing faces in avoiding an outright deflationary spiral. Japan's experience shows what deflation combined with a shrinking population can mean for an economy.
The soft data saw the yuan lose early gains but Chinese blue chips are still up, in part thanks to hopes that Beijing is relaxing its regulatory grip on the tech sector.
Globally, a deflationary pulse from China could over time help to offset service-driven inflation in developed nations. Disinflation in goods is a major reason analysts expect coming U.S. CPI data to show a slowdown in June.
Headline U.S. inflation is forecast at 3.1%, a remarkable turnaround from 9.1% a year earlier even if core measures are proving stickier. That would be welcome news for the Treasury market after its recent drubbing.
Some funds were clearly long of bonds in anticipation of an "end of the tightening cycle" rally that never materialised, and got badly squeezed when the market moved against them.
The fact that U.S. 10-year yields are still testing 4.09% despite the downside miss on headline payrolls suggests the market is still long and there's further pain ahead.
One side effect of the surge in bond yields has been a shake-out of carry trades in the forex market. Every investor and their mum has borrowed cheaply in yen to invest in high yielders, with the Mexican peso likely the most crowded of all the trades.
Rising yields in the developed world make emerging markets look relatively less attractive and can pressure those positions. It was notable late last week that Mexican bonds suddenly sold off and the peso slid 2.6% on the yen over two sessions - although that follows months of gains.
Such trades are usually done by selling yen for dollars and dollars for pesos, or whatever the target currency is, so when the positions are reversed it leads to selling of dollars for yen.
This was likely a major reason the dollar dropped 1.3% on the yen on Friday, and why any major unwinding of carry trades would drag the dollar down even if its own fundamentals seemed sound.
Still, a sustained unwinding seems unlikely unless and until the Bank of Japan finally gives up on its yield curve control (YCC) policy. The BOJ's next meeting is on July 28 and many western banks are tipping some form of tightening, although the BoJ itself has shown scant sign of gratifying them. Were it to happen, it would be a seismic event for markets.
Key developments that could influence markets on Monday:
- Bank of England Governor Andrew Bailey and Finance Minister Jeremy Hunt speak at the annual Mansion House dinner
- Fed speakers at Monday events include San Francisco President Mary Daly, Cleveland President Loretta Mester and Atlanta President Raphael Bostic
EUROPEAN FUTURES TICK LOWER AS CHINA DATA DENTS SENTIMENT(0628 GMT)
European futures are signalling declines as China disinflation comes back into view
Futures on the Euro STOXX 50 are down 0.6%, while those on the FTSE 100 and DAX are down 0.3%.
Traders are mulling more how likely China's policymakers are to use more stimulus to boost waning demand, after the latest figures showed China's factory-gate prices fell at the fastest pace in seven-and-a-half years in June, while consumer inflation was at its slowest since 2021.
Looking ahead, the week will see data on U.S. consumer prices with inflation thought to be seen slowing, potentially lowering the chances that the Fed will hike rates again in September. Some big U.S. banks are also due to report results on Friday, including JPMorgan, Wells Fargo and Citigroup.
In the UK, a survey of recruiters published on Monday showed wage growth in Britain's labour market cooled further in June, which could help ease some of the Bank of England's (BoE) concerns about inflation pressure.
Market watchers will be keeping an eye on Britain's BT <BT.L BT> shares at the open after the company said on Monday it had started the hunt for a new chief executive after Philip Jansen told the board he planned to step down at "an appropriate moment" within the next year.
(Lucy Raitano)
