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GLOBAL MARKETS-European shares edge higher as investors await Fed meeting

Wed, 29th Jul 2020 12:07

* Graphic: 2020 asset performance http://tmsnrt.rs/2yaDPgn

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* For Reuters Live Markets blog:
(Updates throughout, adds quotes and chart)

By Elizabeth Howcroft

LONDON, July 29 (Reuters) - European shares rose on
Wednesday, but a resurgence of COVID-19 cases kept investors
cautious as they awaited news from the U.S. Federal Reserve's
latest policy meeting.

Wall Street closed lower on Tuesday and the negative
sentiment continued through the Asian session, with Japan’s
Nikkei falling on a rising yen and a weak start to the corporate
earnings season.

The MSCI world equity index, which tracks
shares in 49 countries, was flat at 1007 GMT, while mixed
corporate earnings sent MSCI's main European Index down by a
quarter of a point.

Europe's STOXX 600 was up 0.1%, Germany's DAX was
down 0.1% and France's CAC 40 gained 0.7% on the back
of a flurry of better than feared results, including from
heavyweight luxury group Kering .

Spanish bank Santander reported a record
second-quarter loss while Germany's Deutsche Bank gave a
slightly improved outlook.

"Global stock markets appear to be starting to get a little
wobbly as the latest earnings numbers start to paint a picture
of a global economy that could start to face a challenging time
in the weeks and months ahead," wrote Michael Hewson, chief
market analyst at CMC Markets UK.

"The resurgence of coronavirus cases starting to get
reported across the world is prompting the realisation that
hopes of a V-shaped recovery are starting to look like pie in
the sky."

Deaths from coronavirus in the United States registered
their biggest one-day increase since May on Tuesday, with this
month's spike in infections having forced some states to make a
U-turn on the reopening of their economies.

Asia and Europe have also been hit by new surges in COVID-19
infections, with several countries imposing new restrictions and
Britain imposing 14-day quarantines on travellers from Spain.

Global airlines cut their coronavirus recovery forecasts on
Tuesday, saying it would take until 2024 - a year longer than
previously expected - for passenger traffic to return to
pre-crisis levels.

The dollar index fell in early London trading, hitting
two-year lows before firming slightly.

As sentiment soured, high-grade euro zone bond yields
dropped to their lowest in more than two months. The German
10-year yield was at -0.505%, having hit as low as -0.521%

"It should be clear to investors that the virus itself is
not going away," said David Riley, chief investment strategist
at BlueBay Asset Management.

"It’s something that’s going to be there having an impact on
behaviour, having an impact on economic activity through the
remainder of this year and into much of next year."

Gold paused its rally, down 0.2% at $1,954.33 an ounce.

Oil prices climbed after a surprise drop in U.S. crude
inventories was enough to offset concerns about U.S. fuel
demand, though concerns about the record increases in COVID-19
infections kept gains in check.

Brent crude futures were up 58 cents, or 1.3%, at
$43.80 a barrel by 1028 GMT. U.S. West Texas Intermediate crude
futures gained 43 cents, or 1.1%, to $41.47.

Investors are also keeping a close eye on the U.S. Federal
Reserve as it begins its two-day meeting.

The Fed is expected to sound reassuringly accommodative at
its policy review later in the day and perhaps open the door to
a higher tolerance for inflation - something dollar bears think
could squash real yields and sink the currency even further.

Investors are also focused on U.S. Congress and White House
as they clash over new measures to replace enhanced coronavirus
unemployment benefits that are due to expire on Friday.

BlueBay's Riley said the market consensus was that a $1
trillion support package will be agreed.

"I think that’s a kind of bare minimum and that won’t be the
last that will be needed," he said.

(Reporting by Elizabeth Howcroft
Editing by Nick Macfie and David Goodman)

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