European Stocks Seen Higher; ECB Meeting Looms Large By

© Reuters.

By Peter Nurse – European stock markets are seen opening higher Tuesday, with expectation growing ahead of Thursday’s policy meeting of the European Central Bank. However, investors will be keeping a wary eye on the U.S. tech sector as Wall Street returns from holiday.

At 2:05 AM ET (0605 GMT), the contract in Germany traded 0.2% higher, in France climbed 0.3%, while the contract in the U.K. rose 0.4%. 

“The eurozone is still on track to see a very strong third-quarter growth figure. However, recent indicators signal some deceleration. Inflation is undershooting expectations, paving the way for an extension to the Pandemic Emergency Purchase Programme,” said ING’s Peter Vanden Houte, in a research note.

The European Central Bank meets on Thursday, and expectation is growing that it may be forced into action following the Federal Reserve’s change in inflation tolerance at its last meeting at the end of August.

“The ECB is under pressure to prevent further strengthening of the EUR with core inflation already at record-lows. We expect [President Christine] Lagarde to bring promises of more policy easing to next week’s ECB meeting, if not concrete easing measures,” analysts at Nordea said, in a research note published late last week.

The eurozone economy is expected to rebound in the third quarter from a record=breaking drop in the three months through June. France’s official statistics agency confirmed earlier Tuesday its forecast of a 9% drop in gross domestic product in 2020 due to the coronavirus pandemic. Overall though, second-quarter GDP numbers have been close to the ECB’s baseline forecast, board member Isabel Schnabel said last week.

Earlier Tuesday, Japan’s economy, the world’s third-largest, an annualised 28.1% in the second quarter, more than a preliminary reading of 27.8%.

Investors will also be keeping a wary eye on the return of the U.S. market after the Labor Day holiday. The dominant tech sector, which has seen mammoth gains throughout the Covid-19 pandemic, hit the skids late last week due to doubts over positioning and stretched valuations.

Oil prices dropped Tuesday, with the U.S. WTI contract suffering the bulk of the selling after the U.S. Labor Day long weekend, which marks the end of the peak U.S. driving season.

futures traded 1.7% lower at $39.09 a barrel, while the international benchmark contract fell 0.1% to $42.00. 

Elsewhere, rose 0.3% to $1,940.30/oz, while traded 0.1% higher at $1.1825.

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