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Stocks struggle, oil jumps on Middle East tensions

Published 2019-07-22, 07:43 a/m
© Reuters.  Stocks struggle, oil jumps on Middle East tensions

* Oil prices jump on fresh Middle East tensions

* European stocks edge higher, Britain's FTSE up 0.4%

* Sterling falls nearly 0.5% on increasing no-deal Brexit fears

* Media report puts 25 bps Fed rate cut expectations back in play

* U.S. futures point to firmer open

By Karin Strohecker

LONDON, July 22 (Reuters) - European stocks lingered on Monday, hamstrung by dialled-down expectations for a larger U.S. rate cut this month, while escalating tensions in the Middle East boosted oil prices and rising fears for a no-deal Brexit haunted the pound.

MSCI's broad index of world stocks .MIWD00000PUS slipped 0.1%, pulling further away from the near-year-and-a-half high reached earlier in June after falls in much of Asia. .MIAPJ0000PUS

Europe's regional STOXX 600 index .STOXX was treading water, Germany's DAX .GDAXI and France's CAC .FCHI rose 0.2% and Britain's FTSE .FTSE jumped 0.4%.

Energy stocks booked the largest gains in Europe after crude oil prices jumped around $1 per barrel, on concern that Iran's seizure of a British tanker last week may lead to disruptions in the Middle East. O/R

Meanwhile, investors were shunning real estate stocks .SX86P that would benefit from lower interest rates and defensive sectors such as utilities .SX6P and telecoms .SXKP ahead of a big week for earnings.

"Sentiment about company earnings potential appears to be mixed at best, with some evidence that we might be seeing a bit of a pickup in economic data, after a slow first half of the year," said Michael Hewson at CMC Markets.

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"The pickup in U.S. economic data last week, as well as contradictory commentary from Fed officials, appears to be muddying the waters for investors about the possible reaction function of the U.S. Federal Reserve at the end of this month and whether we can expect to see a 25 basis point or 50 basis point rate cut."

Momentum looked better for Wall Street. U.S. futures ESc1 NQc1 pointed to a 0.3% to 0.5% higher open.

Global stocks rose towards the end of last week after dovish comments by New York Fed President John Williams (NYSE:WMB) boosted expectations the world's top central bank would lower rates by 50 basis points at its July 30-31 meeting.

They gave back those gains and Wall Street shares fell after the New York Fed walked back Williams' comments by saying his speech was not about upcoming policy action.

Hopes for a larger cut were curtailed even more after the Wall Street Journal reported the Fed was likely to cut rates by 25 bps this month, and may trim further in the future given global growth and trade uncertainties. dollar inched higher and U.S. Treasury yields held steady on the greater likelihood of a shallower rate cut. The dollar index .DXY gained to 97.193 against a basket of six major currencies after rising 0.4% on Friday.

The euro EUR= was little changed at $1.1219 after shedding 0.5% on Friday. The dollar edged up 0.16% to 107.86 yen JPY= . The benchmark 10-year Treasury yield US10YT=RR lingered at 2.0429%. Still, the pressure on equity markets limited the rise in safe-haven Treasury yields.

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"Market direction will be driven increasingly by macro economic data; central bank policy responses are in the prices already and earnings are unable to lift the equity markets so the dynamics will be economic data and the concerns about geo-political risks and trade," said Larry Hatheway, head of GAM Investment Solutions & Chief Economist in Zurich.

"The market will struggle to find direction until autumn and we may have another pullback in capital markets."

Trump last week by renewed a threat to impose tariffs on another $325 billion of Chinese goods, even as hopes grew that the two sides would soon resume face-to-face negotiations in a bid to end their year-long trade war. in currencies, the pound fell nearly half a percent amid increasing bets on a no-deal Brexit before the Conservative Party chooses its new leader on Tuesday. The pound was last down 0.3% at $1.2463 GBP=D3 , having declined 1.6% against the dollar so far this month. It was also lower against the euro at 89.98 EURGBP=D3 .

In commodities, Brent crude futures LCOc1 and U.S. crude futures CLc1 jumped around $1 to $63.46 and $56.36 per barrel following a 1% jump on Friday.

Iran's Revolutionary Guards on Friday captured a British-flagged oil tanker in the Strait of Hormuz after Britain seized an Iranian vessel earlier this month, further raising tensions along a vital international route for oil shipments. gold XAU= hovered at $1,425.9 an ounce after rising as high as $1,452.60 on Friday, its strongest since May 2013.

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