GLOBAL MARKETS-European shares fall as markets turn risk-averse; ECB in focus

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By Elizabeth Howcroft
LONDON, July 16 (Reuters) - European shares opened lower on
Thursday after Asian stocks faltered overnight, with risk
appetite hit by deteriorating U.S.-China relations and
worse-than-expected Chinese domestic consumption data.
The White House said on Wednesday it had not ruled out
further sanctions on top Chinese officials to punish China for
its handling of Hong Kong. The United States also said it was studying the national
security risks of social media applications including China's
TikTok and WeChat. Europe's STOXX 600 was down 0.9% at 0800 GMT .STOXX and
London's FTSE 100 also fell 0.9% .FTSE , both partially erasing
yesterday's gains. The MSCI world equity index .MIWD00000PUS , which tracks
shares in 49 countries, was down 0.5%, and MSCI's main Europe
Index was down 0.8% .MSER .
Although China's GDP returned to growth in the second
quarter, up 3.2%, retail sales data was worse than expected.
"We're going to see a mechanical V-Shaped recovery without a
doubt but it's the economic effects, things like discretionary
spending, that I think people's concerns are centred around,"
said Russell Silberston, investment strategist at Ninety One.
"The big concern that we have is the economic scarring – how
much damage is being done," he said.
In currency markets, the dollar index firmed, up 0.1% at
96.104, having hit a one-month low on Wednesday =USD .
The riskier Australian and New Zealand dollars slipped
NZD=D3 AUD=D3 and euro-dollar, which hit a four-month high
of $1.1452 on Wednesday, edged back down, at $1.1406 EUR=EBS .
Oil prices eased after OPEC and allies such as Russia agreed
to taper record supply curbs from August, though the drop was
cushioned by hopes for a swift pick-up in U.S. demand after a
big drawdown from the country's crude stocks. Brent crude LCOc1 fell 18 cents to $43.61 a barrel, and
U.S. West Texas Intermediate crude CLc1 was down 29 cents, at
$40.91 a barrel at 0800 GMT.
Gold prices eased somewhat but were near a nine-year peak.
Euro zone bond yields held broadly steady, with borrowing
costs in the periphery near their lowest levels since March. The
benchmark German 10-year Bund yield was at -0.446% DE10YT=RR .
In Europe, the focus is on the European Central Bank's
meeting, at which it is expected to announce no new policy
measures, having already bought record amounts of debt as part
of its emergency response to COVID-19. "Though recent comments from ECB officials have shown signs
of an emerging optimism, our economists don't believe these
signal a change in the policy stance, and expect the commitment
to "substantial monetary policy stimulus" to be repeated,"
Deutsche Bank strategist Jim Reid wrote in a note to clients.
The International Monetary Fund's top official warned on
Wednesday that a second major wave of infections could trigger
more economic disruption. Rising COVID-19 cases have seen some countries re-impose
lockdown measures, but the effect of new infections on daily
market moves is not clear-cut, as the more economies shut down,
the more stimulus from central banks and governments is
expected.
"If cases are rising and we see more lockdowns then that
uncertainty will almost definitely hit markets," Ninety One's
Silberston said.
"But, big picture, markets have rallied massively from the
lows on the basis of stimulus so there's a counter-argument that
says: Ok, if we do go into lockdown, we'll see even more
stimulus," he said.
The ECB delivers its decision at 1145 GMT, and ECB President
Christine Lagarde will hold a news conference at 1230 GMT.
Investors are also focused on a European Union summit on
Friday and Saturday, at which the proposed EU-wide coronavirus
recovery fund will be discussed.

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