Trade tensions build as Daimler warns on sales

Mercedes-Benz maker Daimler (DAIGn.DE) shocked investors on Thursday with a warning that trade tensions were hitting sales, while fears of a “tit-for-tat” trade war grew as Europe readied retaliatory tariffs against the United States.

Auto stocks sank to a nine-month low on European markets .SXAP after Daimler cut its 2018 profit forecast and said it was considering “possible strategic options” in light of the rising trade tensions between China and the United States.

The revised forecast sparked fears of earnings downgrades across the industry and followed a proposal by U.S. President Donald Trump to impose tariffs on imported vehicles, arguing that trade imbalances threatened U.S. national security.

Trump is separately promising to impose tariffs on up to $200 billion of Chinese goods, escalating a conflict that has already drawn retaliatory steps from nearly all corners of the world. China for its part has warned it will retaliate with levies on U.S. products, potentially including the Mercedes-Benz SUVs shipped to China from Alabama.

Daimler’s news comes a day after top central bank chiefs said a developing trade war between the world’s biggest economies was weighing on business confidence and could force central banks to downgrade their outlook.

Meeting in Portugal, the heads of the U.S. Federal Reserve, the European Central Bank, the Bank of Japan and the Reserve Bank of Australia on Wednesday all took a gloomy view on the conflict, arguing the consequences are already evident.

Mario Draghi, head of the European Central Bank (ECB), said it was too early to assess the monetary policy impact of an escalation in trade tariffs between the United States and its partners but there was no reason for optimism.

Global Stocks set for strongest week since March

Global Stock Markets

Shares rose worldwide on Friday, getting a boost from soft U.S. inflation numbers that helped soothe worries of faster Fed monetary tightening and pushed the dollar to its lowest for a week.

The MSCI All Country World Index MIWD00000PUS, which tracks shares in 47 countries, was up nearly 0.4 percent and was set for its strongest week since March 9. The dollar .DXY fell 0.2 percent against a basket of currencies, erasing this week’s gains in the wake of inflation data released on Thursday.

Oil prices steadied near 3-1/2-year highs as the prospect of new U.S. sanctions on Iran tightened the outlook for Middle East supply at a time when global crude production is only just keeping pace with rising demand.

The inflation numbers followed employment data last week that pointed to sluggish wage growth.
While the rally in stocks seemed to point to investor relief, analysts were split over whether the slowdown in inflation could lower the chances of the Fed increasing the number of rate hikes it has suggested will take place this year.

Federal Reserve Bank of St. Louis’ President James Bullard will make a speech on Friday, as will European Central Bank President Mario Draghi.

ADS Securities head of research Konstantinos Anthis said the case for two or three further U.S. rate hikes might be decided after the summer. Fed funds futures show a 93-percent chance of one next month.


The inflation data also flattened the U.S. Treasury yield curve further, with the gap between 5-year and 30-year bonds at its narrowest since 2007. Investors also bought southern European government bonds, taking advantage of a rise in yields on the back of Italian political concerns.

Italian, Spanish and Portuguese 10-year borrowing costs fell 2-3 basis points (bps), outpacing better-rated peers at the end of a week in which the increasing likelihood of an anti-establishment coalition taking power in Italy had hurt the euro zone’s lower-rated debt.

Italian 10-year yields were set for their biggest weekly rise since February. IT10YT=RR ES10YT=RR PT10YT=RR

European stocks, meanwhile, were set to seal their longest winning streak for more than three years as M&A activity stole the spotlight from the tail-end of a robust earnings season.

The pan-European STOXX 600 was flat, but set for its seventh straight week of gains - its longest winning streak since March 2015. Germany's DAX .GDAXI was down 0.3 percent and Britain's FTSE 100 .FTSE was down 0.1 percent. Wall Street was futures indicated a positive start to the session. ESc1

Asian markets were cheered by a further easing in tensions on the Korean Peninsula, after U.S. President Donald Trump said he would meet North Korean leader Kim Jong Un in Singapore on June 12 for talks on Pyongyang’s nuclear weapons programme.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.7 percent to near three-week highs while Japan's Nikkei .N225 climbed 1.2 percent.

With the situation around North Korea off the boil for now, political concerns are focused elsewhere as the United States and China continue skirmishing over trade and as tensions rise in the Middle East.

U.S. and Chinese officials will meet in Washington for a second round of trade talks next week, after apparently making little progress in discussions in Beijing this month.

In currency markets, the pound traded at $1.3573, rising half a percent above a four-month low of $1.3457 touched on Thursday after the Bank of England held interest rates.

In commodities markets, spot gold rose 0.3 percent to $1,324.66 an ounce. XAU=

U.S. crude futures CLc1 were up 0.2 percent at $71.46 a barrel. Brent crude futures LCOc1 fell 0.1 percent to $77.41 a barrel.

European stocks flip up as Draghi talks about keeping up bond buying

European Stock Markets

European stocks latched onto small gains Wednesday, buoyed after European Central Bank President Mario Draghi said its bond-buying program will likely continue if underlying inflation in the region remains subdued.

Meanwhile, investors were sifting through more corporate updates, including one from Adidas AG that sent shares of the German sports gear maker flying higher by double digits.
How markets are moving

The Stoxx Europe 600 index SXXP, +0.26% rose 0.1% to 375.83, led by gains for consumer goods and telecom stocks. But tech stocks lost the most. On Tuesday, the index dropped 1%, largely as the euro and the pound surged against the U.S. dollar.

France’s CAC 40 index PX1, +0.26%  turned up by 0.1% to 5,249.16. Germany’s DAX 30 DAX, +0.19% rose 0.3% to 12,254.03.

The U.K.’s FTSE 100 index UKX, +0.24% rose 0.3% to 7,1621.44, but Spain’s IBEX 35 IBEX, +0.12%  fell 0.3% to 9,658.40.

The euro EURUSD, -0.1695%  bought $1.2373, down from $1.2392 late Tuesday in New York.
What’s driving markets

Regional indexes began to rotate higher as the euro pulled back during a speech by ECB President Mario Draghi at conference in Frankfurt. He did say the eurozone economy has been strengthening more than it had anticipated.

However, “there is a very clear condition for us to bring net asset purchases to an end: we need to see a sustained adjustment in the path of inflation towards our aim, which is a headline inflation rate of below, but close to 2% over the medium term,” he said, adding that “the performance of underlying inflation remains subdued compared with previous recoveries.”

The euro declined as soft inflationary pressures would likely keep the European Central Bank from raising interest rates in the foreseeable future. “The key issues we need to examine are wage dynamics, their pass-through to prices, and the possible risks to the inflation outlook,” said Draghi.

A weaker euro can help bolster shares of European exporters as it makes their goods and services less expensive to purchase for overseas buyers. The euro on Tuesday leapt above $1.24 for the first time since March 8 after an expected reading of U.S. consumer prices February tamped down concerns that the Federal Reserve will raise interest rates four times in 2018 instead of three as previously expected.

The eurozone’s final reading of consumer price inflation for February is scheduled for release on Friday.

Adidas AG shares ADS, +7.49% jumped 9% for the Stoxx Europe 600’s biggest gain after the sporting goods company upgraded its long-term profitability target even as its posted a fourth-quarter net loss due to a one-off negative tax effect. Adidas will also propose lifting its dividend of €2.60 a share and that it will initiate share buyback program of up to €3 billion.

Shares in Inditex SA ITX, +1.07% fell 2.6% as the parent company for apparel retailer Zara said sales in stores that have been open for a year or more rose 5%, a marked slowdown from the 10% growth reported the previous period.

Prudential PLC PRU, +5.29% climbed 5% after the financial services company saying it will demerge M&G Prudential. Following that move, M&G Prudential will be an independent provider of savings and investment services.

Asia shares firm as Trump agrees to meet North Korean leader

Asia Stock Markets

Asian shares pared sharp early gains on Friday ahead of U.S. payrolls data which could hasten Federal Reserve rate hikes, and as some caution set in about the new entente between North Korean leader Kim Jong Un and U.S. President Donald Trump. 

Kim has committed to “denuclearization” and offered to hold the first-ever U.S.-North Korea summit, marking a potentially dramatic breakthrough in the North Korea nuclear standoff. 

Trump’s aides have been wary of North Korea’s diplomatic overtures because of its history of reneging on international commitments. 

The jubilation about the informal alliance did not last long as equity investors booked profits while futures for the S&P 500 and FTSE inched lower.

Japan’s Nikkei was last 0.3 percent firmer, having been up more than 2 percent at one stage. South Korean stocks eased too but were still 1 percent higher. 

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6 percent, while Australia firmed 0.3 percent. 

The mood had already brightened a little after Trump pressed ahead with tariffs but offered conditional exemptions for Canada and Mexico, offering at least the hope that a full-blown global trade war could be averted.

The White House said other countries could apply for exemptions on the 25 percent tariff on steel imports and 10 percent for aluminum, but details were sparse on when they might be granted and under what terms. 

Several major trading partners have said they will respond with tariffs or direct action of their own.

Rising protectionism was a risk cited overnight by European Central Bank President Mario Draghi following the central bank’s latest policy meeting.

While the ECB did drop its easing bias as some expected, Draghi sounded in no rush to start unwinding stimulus.

The dovish tone was enough to see the euro fade back to $1.2310, having shed 0.8 percent on Thursday. That helped the U.S. dollar firm on a basket of currencies to 90.189.

The dollar gained 0.4 percent on the yen to 106.63, amid the recovery in risk appetite.

ECB eyes at baby step towards stimulus exit

European Stock Markets

The European Central Bank is all but certain to keep policy unchanged on Thursday but may tweak its communication stance to offer at least a few clues about its progress towards ending its unprecedented bond purchases later this year. 

Having revived euro zone growth with lavish stimulus, the ECB is now debating whether to step back and preserve its remaining firepower. But concerns over low inflation, a strong euro, rising political risk and recent market volatility are expected to prevail for now.

Having promised to review their communication stance in “early” 2018, however, and with asset purchases due to expire in September, policymakers are likely to give investors at least a few hints to prepare them for a broader revision of policy around the summer months, economists predicted.

The ECB announces its policy decision at 1245 GMT, followed by ECB President Mario Draghi’s news conference at 1330 GMT, which will also include a quarterly update of economic projections.

The dichotomy facing the ECB is that while growth has blown past expectations, inflation remains weak, having hit a 14-month low in February and staying well short of its target of almost 2 percent.

While the bloc’s five-year growth run and a rapid drop in unemployment suggest that inflation will eventually rise, its rebound is still months away, complicated by the euro’s rise against the dollar, which puts a lid on price growth.

The single currency was trading at $1.24 on Thursday, a touch below a three-year high hit last month.

Risks of a trade war with the United States, an inconclusive election in Italy and falling bank share prices could add to caution, economists predicted.

New economic projections are also not likely to trigger a bigger policy shift since they are expected to confirm earlier expectations, pointing to an eventual rise in inflation but still indicating a lack of convincing underlying price pressures.

The biggest change on the agenda is likely to be a proposal to drop the bank’s so-called easing bias, which stipulates that bond buys could be increased if needed.

While few if any actually expect purchase volumes to rise, such a tweak would suggest policymakers are increasingly confident that their 2.55 trillion bond buys could finally end this year after several extensions. 

For now, the ECB’s benchmark deposit rate will stay at minus 0.4 percent and monthly bond buys will continue at 30 billion euros per month.

Euro gains: Key political developments in Germany and Italy.

European Stock Markets

The euro gained on Monday as a fall in U.S. Treasury yields dragged down the dollar, but trading was relatively quiet ahead of several speeches by central bankers and key political developments in Germany and Italy. 

With the dollar’s bounce since it hit a three year-low on Feb. 16 fizzling out, the euro was able to rise 0.3 percent and climb to $1.2328. 

But the euro remains 2 cents off its recent highs of more than $1.25 - the currency has rallied this year on the back of dollar weakness - and analysts said investors were cautious about taking big positions this week due to political risks. 

Italians vote in a national election on Sunday, while the leading political parties in Germany, Europe’s biggest economy, will decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor. 

Analysts pointed to weekly futures data that showed net long positions in the euro had fallen for a third consecutive week. European Central Bank President Mario Draghi’s appearance in the European Parliament on Monday and euro zone inflation data due later this week also add to a nervous outlook for euro trading. 

The dollar index, which measures the greenback against a basket of six major rivals, eased 0.2 percent to 89.685. It gained nearly 0.9 percent last week and pulled away from a three-year low near 88.25 set on Feb. 16. 

A view that the dollar’s sell-off had been overdone, plus minutes from the Fed’s January rate-setting meeting that offered a relatively upbeat tone, helped give the dollar a lift last week.

The dollar fell 0.1 percent versus the yen to 106.65 and erasing some of its earlier losses in Asian trading. 

While stock markets started the week on a solid footing and pointed to strong risk appetite, futures data suggested foreign exchange investors were cutting their risk exposures, albeit from high levels.

Positions in risk-related foreign exchanges, particularly sterling and the Canadian dollar, fell, according to the data.

European markets mixed as Draghi speaks; Carillion shares tank 59%

Retail stocks were the worst performers in early deals. European Central Bank President Mario Draghi says the bank needs to be patient. Germany drags on with coalition talks as disagreements over climate, migration and finances remain between the three parties.

The pan-European Stoxx 600 was 0.04 percent higher with sectors moving in different directions. Retail stocks were the worst performers in early deals, down by 0.6 percent, after several rating updates. In particular, H&M fell nearly 3 percent after a rating downgrade by SEB to a "sell" from a "hold". And Inditex dropped 2.2 percent after Berenberg cut the stock to "sell" from "hold". Analysts have raised concerns over the increasing competition from online shopping.

On the other hand, financial services were among the best performers, boosted by rating upgrades. The dutch investment firm Exor rose about 2 percent after a target price increase, becoming one of the best-performing stocks across the European benchmark.

Looking at individual stocks, Sky hit the top of the Stoxx 600, up by 3.3 percent. The stock was boosted by the news that Comcast, parent company of CNBC, and Verizon have said they are interested in buying certain parts of Twenty-First Century Fox.

Shares of construction and support services provider Carillion sank by 59 percent after it issued its third profit warning of the year.

Meanwhile, shares of Elior fell more than 15 percent after a profit warning. The stock was at the bottom of the benchmark.

In other corporate news, Nationwide Building Society posted a 10 percent drop in profits in the first half of its financial year.

In Italy, Alitalia said Thursday that it has met with members of Lufthansa. According to Reuters, Alitalia said that media reports over a deal with Lufthansa were "groundless."
Draghi says the ECB needs to be patient

In terms of data, there will be euro zone current account numbers out at 9:00 a.m. London time.

Market players were also digesting remarks by European Central Bank President Mario Draghi. He told an audience in Frankfurt that the ECB needs to patient when normalizing monetary policy. This is because despite the improved economic growth in the 19-member area, inflation remains subdued.

As the quartet breaks up, central banking leadership flux looms

The leaders of the world’s top central banks who risked trillions of dollars and their reputations to rescue the global economy are now set to walk off stage at a time when the lingering effects of the crisis, evolving technology and a combustible political landscape will challenge their successors. 

The Federal Reserve, the Bank of Japan and the People’s Bank of China may all have new bosses in early 2018 and there will be a new head of the European Central Bank the following year.
The new leaders will have to deal with the hangover from the 2007-2009 crisis and its immediate aftermath as well as newly emerging risks.

Some $10 trillion (7.53 trillion pounds) in assets bought by the Fed, the ECB and the BOJ to prop up their economies remains on the books and will have to be pared back. Stubbornly low global inflation and weak growth complicate the return to more conventional policies. There are unfinished reforms in China and Europe, while the rise of nationalism could erode central bank independence.

The changing of the guard could veer in unpredictable directions. China’s president is considering a provincial official to succeed Zhou Xiaochuan, a veteran policymaker who has led the central bank since 2002 and whom analysts regard as a champion of reforms that could falter without his leadership.

In the United States, President Donald Trump will have the opportunity to infuse his “America First” sensibility at the Fed, an institution with an undeniable global role, when Chair Janet Yellen’s term ends in early February.

BOJ Governor Haruhiko Kuroda’s shock-and-awe record monetary stimulus gets credited for helping Japan snap out of years of stagnation. He will see his term end next April with the economy expected to keep growing, but inflation still far from his target, fuelling doubts about the overall effectiveness of his policy.

ECB President Mario Draghi will be around until late 2019, but the succession battle could renew tensions over Britain’s departure from the European Union, ways of aligning the interests of economic superpower Germany with the rest of Europe, and concerns that the rise of nationalism could impair the ECB’s ability to set monetary policy for 19 countries.

It was a “farewell concert” of sorts for a group whose tenure has transformed central banking.
With rare exceptions, monetary policymakers from different countries avoid any hint of direct coordination with each other, and primarily tailor policies to domestic needs. Still, the four in charge now have shared years at the helm of the global financial system, met and talked at countless international meetings, and managed a major crisis together.

Along the way they deployed open-ended central bank asset purchases, introduced negative interest rates, salvaged the euro zone from a possible fracture, and steered China, now the world’s second largest economy, towards more openness and currency reforms. Yellen, a top Fed official since 2004, both helped craft the crisis response and steered the Fed’s to a more conventional policy.

Euro minefield - what markets will monitor at Thursday's ECB meeting

European Central Bank policymakers hold a widely anticipated meeting on Thursday, amid speculation the central bank wants to wind down its extraordinary bond-buying monetary stimulus soon. 

However, this year’s surge in the euro exchange rate complicates the ECB’s exit strategy. It curtails already sub-target inflation by making dollar-priced imports cheaper, dragging down the booming export sector and cutting into corporate earnings from outside the bloc. 

Any mention of the euro and its relative impact on financial and economic conditions, as a result, may be the biggest market mover on Thursday. 

Here’s what financial markets are looking for from the ECB’s statement and President Mario Draghi’s press conference. 

1. EURO STRENGTH 

The euro’s more than 13 percent rise against the dollar so far this year, its biggest in 14 years, puts the currency at the top of investor watch lists. 

Absolute levels for the euro are still below its levels since ECB chief Mario Draghi promised to save the euro zone, but it is the speed of the move that is a concern. 

On a trade-weighted basis, the euro EUR=ECBF has gained nearly 6 percent in less than five months. That strength creates obstacles for both economic growth and inflation in the euro zone. 

Sources told Reuters last week that euro strength could delay ECB plans to roll back stimulus, and Draghi is sure to be asked about the currency in the post-meeting news conference.

2. POLICY STATEMENT

With currency strength making a rare appearance in the minutes of the last policy meeting on July 20, markets will watch if the currency gets more attention in the formal post-meeting statement this week. 

Despite the reference, Morgan Stanley analysts say mention of the currency has dropped sharply in recent months after data-mining each policy statement and accompanying press conference since 1998. 

July’s policy statement had an abnormally low nine mentions of the currency compared with an average of 27 in the last two years and far below 56 times at its March meeting.

EURO ABOVE $1.20

Though the risk-averse mood prevailed across financial markets, the euro appeared immune to the geopolitical news.

The single currency surged above 1.20 to the dollar EUR=EBS, breaching a key level as investors grew bullish about its outlook after European Central Bank President Mario Draghi refrained from talking about the currency’s recent strength and in the backdrop of brewing U.S. fiscal problems.

In commodities, crude prices dipped as the market grappled with the shutdown of some 13 percent of refining capacity in the U.S. after a hurricane ripped through the heart of the country’s oil industry.

International Brent crude futures LCOc1 fell 0.7 percent at $51.53 per barrel.

U.S. gasoline price RBc1, which surged as much as 7 percent to a two-year peak of $1.7799 a gallon on Monday, traded at $1.7003 on Tuesday. 

In metals, the drop in the dollar combined with falling inventories in London and Shanghai to push copper to its highest in nearly three years, while nickel also rose sharply. 

A weaker greenback generally makes dollar-priced metals cheaper for non-U.S. investors, boosting demand. 

Benchmark copper CMCU3 rose 2.3 percent to $6,819 per tonne. Three-month nickel on the London Metal Exchange CMNI3 was up 2.7 percent at $11,795. 

Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets

Dollar weakens as Tropical Storm Harvey rages

While the euro extended Friday's gains against the dollar, the U.S. currency also slipped against the yen, dipping 0.1 percent to 109.23 yen.

The dollar index – which tracks the U.S. currency against six major rivals – fell to as low as 92.372, its weakest since early May 2016, before recovering a little to trade 0.3 percent down at about 92.489. 

Those declines came after Fed chief Yellen focused more on financial stability in her Jackson Hole speech. 

The remarks disappointed some investors who had hoped for hints on the Fed's plans for interest rates, though most analysts had not expected Yellen or Draghi to shed new light on policies. 

"Draghi does not seem to be overly concerned with the current euro levels, which is the market's justification to move the euro higher," said Commerzbank currency strategist Esther Reichelt.

DOLLAR SLIP

The dollar was down slightly against the yen at 109.38 yen, back near the day's low plumbed after Trump told supporters in Arizona "If we have to close down our government, we're building that wall".

The greenback remained clear of a four-month low of 108.605 yen plumbed last week, when turmoil in the White House and geopolitical tensions took a toll on the currency. 

The dollar index against a basket of six major currencies was down slightly at 93.412 after rising 0.5 percent the previous day. 

Trump's suggestion the NAFTA trade treaty could be scrapped to jumpstart ongoing renegotiations also sent Mexico's peso down 0.6 percent against the dollar. 

The euro was up 0.2 percent at $1.1784 after slipping about 0.5 percent Tuesday on weaker-than-expected German investor confidence. 

Speeches from European Central Bank President Mario Draghi and Fed Chair Janet Yellen will headline the annual Jackson Hole event, although neither are expected to announce any significant policy. 

Draghi gave a speech at Lindau, Germany, on Wednesday but did not discuss the ECB's current monetary policy. 

In commodities, Brent crude traded 0.3 percent lower at $51.68 a barrel after data showed a surprise build in U.S. gasoline inventories. Improving Libyan output also added to oversupply concerns in the crude oil market.

Nickel prices rose to an eight-month high while zinc touched its highest since August 2007 on expectations of strong demand from China, supply concerns and declining stockpiles. 

Benchmark zinc was up 0.8 percent at $3,142.50 a tonne after rising to $3,231.75, its highest since August 2007. Zinc has risen on expectations of a large global deficit and a sharp fall in stocks.

Spot gold was a shade higher at $1,287.58 an ounce, after losing 0.5 percent overnight as the precious metal felt the pressure from a stronger dollar. Spot gold had reached a nine-month high above $1,300.00 an ounce on Friday.

Euro slips against dollar ahead of Jackson Hole

The euro slipped against a broadly stronger dollar on Tuesday, amid expectations that the monetary policy message emerging from the ECB at a central bank conference this week will be a cautious one. 

Friday's speech by European Central Bank President Mario Draghi is among the set-piece events at the Jackson Hole symposium, where remarks by his Federal Reserve counterpart Janet Yellen on the same day will be the main focus. 

Draghi will refrain from delivering a new policy message, two sources familiar with the situation told Reuters last week, tempering any expectations for the ECB to start charting the course out of its quantitative easing (QE) stimulus program. 

Since hitting a 2-1/2 year high near $1.1910 in early August, the common currency has lost some steam, as investors took on board the cautious tone struck by ECB policymakers revealed in the minutes of their July meeting. 

Having gained half a percent on Monday for its biggest single-day rise against the dollar so far this month, it shed 0.2 percent EUR=EBS to $1.1790 on Tuesday. 

Analysts said Draghi would be wary of saying anything that might push the euro above the $1.20 line, a level considered sensitive by euro zone policymakers. 

"It is difficult to see President Draghi exceeding the intrinsic QE taper expectations priced into the euro, while he could choose to repeat the Governing Council’s concerns over currency markets front-running ECB policy normalization," Viraj Patel, an FX strategist at ING in London said. 

The market remained supportive for the euro against other major currencies, however, and it extended gains against the Swiss franc EURCHF= and the pound EURGBP=.

Euro's losses deepen before Jackson Hole

The euro slipped on Monday, extending its biggest weekly decline in more than two months as markets judged the single currency's double-digit gains this year may be too much for a central bank that is still wary of removing stimulus. 

The single currency fell 0.17 percent to $1.1740 against the U.S. dollar, after weakening 0.5 percent last week, its biggest weekly decline since June. 9, according to Reuters data. (Graphic: World FX rates in 2017.

It is still up more than 11 percent so far this year, making it the best performing currency in the G10 currency universe. 

"Absent some Mario Draghi fireworks this week, buying on dips for euro/dollar may be a better strategy rather than chasing the euro higher at these levels," said Viraj Patel, an FX strategist at ING Bank in London. 

European Central Bank President Mario Draghi will not deliver a new policy message at a Fed conference in Jackson Hole this week, two sources familiar with the situation have said, tempering expectations for the ECB to start charting the course out of stimulus. 

But traders are not taking any chances. About $45 billion of euro-dollar currency options on the exchange rate will expire in the three days leading up to the Wyoming meeting. 

With markets hemmed in tight ranges and the lack of any top tier data this week, the dollar index .DXY drifted higher to 93.56 on Monday with latest positioning data showing speculators reducing their bearish bets against the greenback.

Investors cut short dollar bets, particularly against the Japanese yen with positioning seen stretched before Janet Yellen's speech on Friday at the Jackson Hole conference.

Commentary: A decade on, ECB's bold credit crunch fix looks quaint

Ten years ago to the day, the European Central Bank pumped 95 billion euros into the banking system to prevent it from seizing up, marking the start of the global credit crisis. 

At the time it was the biggest ever injection of funds into financial markets and probably the most stunning single central bank action to date. It was also the first step taken by any major authority to tackle the unfolding credit crunch. 

It was a bold and decisive step which pointed to a nimble, flexible and forward-looking central bank. Yet it was also a conventional move and one that wasn't followed up quickly enough with other measures. 

Though the ECB was rightly seen as the vanguard of crisis prevention back then, it soon fell in the slipstream of other central banks -- notably the Federal Reserve and Bank of England -- who adopted much more aggressive and unconventional policies as the crisis unfolded. 

As Steven Englander at Rafiki Capital Management notes, then-president Jean-Claude Trichet's ECB was fulfilling its role as the traditional lender of last resort to a banking system in distress. It used liquidity provisions to ease financial tensions. 

These tensions suddenly appeared on Aug. 9, 2007, when French bank BNP Paribas shut off access to three mortgage-related funds. It was the clearest sign to date that the financial system was malfunctioning and by common consensus was the start of the global crisis. 

At the time, 95 billion euros was an astronomical sum which many observers believed would unblock the global money markets through which trillions of dollars of interbank lending flows and upon which the world economy and financial system is built. 

Yet what seemed like a prescient, intuitive action exactly a decade ago merely became part of patchier, more hesitant response over the following years of turmoil. 

That more muddled navigation was encapsulated best by a premature interest rate rise just months before the Lehman Brothers collapse in 2008 and also an inability to contain the early wildfires of the euro debt crisis in 2010 and 2011 - at least not until ECB President Mario Draghi's dramatic intervention in mid-2012.

Euro at two-year high, Asian shares barely budge

The euro held near two-year highs against the dollar on Friday after the head of the European Central Bank said tapering of its stimulus will be on the table this autumn, while a solid global economic outlook kept Asian share prices near decade highs.

Although ECB President Mario Draghi set no date for changes to the bond-buying plan, investors took his comments on Thursday as confirming their expectations that the discussions would lead to monetary tightening next year.

By late Asian trade, the euro stood at $1.1630 EUR=, maintaining its 1 percent gain on Thursday, its biggest since June 27, when Draghi first sparked expectations that the ECB will dial back its bond buying scheme. 

Signs of steady global growth, which have prompted the ECB and a couple of other major central banks to signal future tightening since last month, have kept the world's shares on firm footing. 

European shares are expected to be flat to slightly lower, with spread betters looking at a flat opening in Britain's FTSE .FTSE and a 0.1 percent fall in Germany's DAX .GDAXI and France's CAC .FCHI. 

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS, which has gained about 5 percent in the past two weeks, eased 0.2 percent on Friday, dragged down by fall in material .MIAPJMT00PUS and financial .MIAPJFN00PUS shares. 

Japan's Nikkei .N225 dropped 0.2 percent. 

MSCI's gauge of stocks across the globe .MIWD00000PUS was down slightly after rising for a 10th straight session on Thursday, its longest such streak since February 2015. It has advanced 3.1 percent in the latest rally. 

U.S. quarterly earnings are expected to have climbed 8.6 percent, above the 8-percent rise projected at the start of the month, according to Thomson Reuters I/B/E/S. About 15 percent of S&P 500 companies having posted results so far.

Global shares rise, euro near 14-month high ahead of ECB

World shares extended a run of record highs on Thursday, as a cautious sounding Bank of Japan lifted Asian stocks to a near decade peak and Europe wagered on an incremental increase in confidence from the ECB at its latest meeting. 

The euro was near a 14-month high and investors were riding a global rally in stocks as Asia's and then Europe's early 0.4 percent gains .FTEU3 ensured MSCI's 47-country All World index .MIWD00000PUS was up for a 10th straight session. 

It is its longest winning streak since February 2015 and was showing little sign of fatigue even as bond yields - the key driver of global borrowing costs - edged higher again. [GVD/EUR] 

They were lifted as oil prices LCOc1 held near 2 percent gains made the previous session when falling U.S. crude inventories gave the market a lift ahead of a key OPEC meeting next week.

The day's focus though was squarely on the Japanese central bank's decision to push back its ambitious inflation target again and on whether European Central Bank head Mario Draghi would give a hint later that it plans to wind down its 60 billion-euro-a-month stimulus programme.

ECB President Draghi opened the door to policy tweaks in a speech last month that was viewed as unexpectedly hawkish, sending the euro EUR= and government bond yields rallying. 

The euro EUR= is up almost 10 percent so far this year but and was a shade lower at $1.1513 ahead of Draghi's 1230 GMT post-meeting news conference, having hit a 14-month high of $1.1583 on Tuesday.

The yen meanwhile had weakened to 112.135 yen per dollar JPY=D4 after the BOJ pushed back its projected timing for hitting its 2 percent inflation target until 2020. 

With both its main rivals down, the dollar rose for a second straight day climbing 0.3 .DXY against a broader basket of trade-weighted peers. 

The other main mover was the Australian dollar AUD=D4 as it set a new two-year high, still heady from an upbeat sounding Reserve Bank of Australia earlier in the week. It eventually pulled back to trade at $0.7939 in Europe. 

In commodities, Brent crude futures LCOc1, the international benchmark for oil prices, were flat at $49.75 per barrel. U.S. West Texas Intermediate (WTI) futures CLc1 also barely budged at $47.18.

Gold XAU= slipped to $1,237 an ounce as the dollar pulled higher, while government bonds, also seen as safe-haven assets, saw modest selling ahead of the ECB meeting.

Euro zone factories round off first half of 2017 on six-year high - PMI

Factories across the euro zone rounded off the first half of 2017 by ramping up activity at the fastest rate for over six years as rising prices failed to put a dent in orders, a survey showed on Monday.

IHS Markit's Manufacturing Purchasing Managers' Index for the euro zone rose to 57.4 in June, up from May's 57.0 and pipping the preliminary reading of 57.3.

June's reading was the highest since April 2011 and was comfortably above the 50 level that separates growth from contraction.

An index measuring output, which feeds into a composite PMI due on Wednesday, jumped to 58.7 from 58.3 - a level not seen in over six years.

Suggesting the momentum will continue into the second half, new orders rose at the fastest rate since early 2011, backlogs of work increased at the fastest pace in over 13 years, raw materials were depleted and factories increased headcount at a near record pace.

That meant manufacturers were at their most optimistic for at least five years. The future output index, which gauges expectations, soared to 67.4 from 66.0 - the highest level in the sub-index's history.

The upturn came alongside factories increasing prices, as they have done for nine months, welcome news to policymakers at the European Central Bank who have been battling for years to get inflation to their 2 percent target ceiling.

Inflation was a stronger-than-expected 1.3 percent in June, official flash data showed on Friday, and while still below target the strong economic data of late meant ECB chief Mario Draghi last week raised the prospect of policy-tightening.

Asian stocks start new month on firm footing, bonds under pressure

Asian stocks held two-years highs on Monday, starting the new month on a solid footing after two quarters of gains while expectations of credit tightening by the world's major central banks kept global bond markets under pressure.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was flat, staying within a stone's throw of its two-year peak hit last week.

Signs of stabilising in China's economy and a recovery in the European economy helped to boost global share prices in the first half of this year.

A private sector survey on China's manufacturing CNPMIC=ECI showed a surprise recovery in activity, adding to the evidence of steadying growth in the world's second largest economy.

The Bank of Japan's tankan corporate survey showed Japanese business sentiment improved slightly more than expected.

On Wall Street, the S&P 500 .SPX scored its biggest gain for the first half of the year since 2013 while the Nasdaq Composite's .IXIC first-half gain was its best in eight years.

European shares had less luck after the European Central Bank and the Bank of England last week signalled their readiness to tighten their monetary policies, with pan-European Euro first 300 stock index .FTEU3 hitting 10-week lows on Friday.

Global bond yields have risen sharply following hawkish comments from European Central Bank President Mario Draghi last Tuesday, with German bond yields posting their biggest weekly jump since December 2015 last week.

That helped to lift U.S. bond yields from lows, with the 10-year U.S. Treasuries yield hitting a 1-1/2-month high of 2.320 percent on Monday.

The rise came even as data showed U.S. inflation cooled in May. The annual rise in core consumer prices excluding food and energy slowed to 1.4 percent, its lowest since December 2015.

New central bank harmony has markets changing their tune

The world's top central bankers have delivered what seems to be a collective message this week that quantitative easing is being put back in its box and interest rates are going up - and global markets are taking note.

Until then at least, stock and bonds had again been trading higher on the premise that the total pot of global liquidity was still swelling despite rising Federal Reserve rates - courtesy of ongoing European Central Bank and Bank of Japan bond buying programmes, most of all.

That's why Mario Draghi's apparent change of tack on Tuesday had such an impact on every global asset from Wall Street to London and Tokyo - far more than any of the latest Fed utterances.

German Bund yields DE10YT=TWEB, a proxy for core Europe's borrowing costs, doubled, spreads between U.S. debt and almost everywhere else tightened, and a number of big banks declared the dollar rally dead as the euro EUR= put it to the sword.

SEB investment management's head of asset allocation, Hans Peterson, said the central banks and their ultra-accommodative policies were "slowly, slowly, slowly turning".

Suddenly, the usual central bank noise has suddenly harmonised over what the Bank for International Settlements - where dozens of central bankers met at the weekend - called the "great unwinding" of easy money.

Hours after Draghi spoke, U.S. Federal Reserve chief Janet Yellen was warning of high asset price valuations, a colleague was talking about putting its balance sheet on "autopilot", and Bank of England Governor Mark Carney had pirouetted from saying that now was not the time to think about rate hikes to saying they would soon have to be discussed.

Despite the initial knee-jerk moves, markets remained relatively cautious, wary that subdued global inflation and wage growth - which policymakers openly admit they are struggling to understand - will delay their reactions.

A Bank of England rate hike is now 80 percent priced-in by March next year, and Canada is at 70 percent after talk of rate rises there too this week.

But traders are still not banking on another Fed rate rise in the next 12 months, and the ECB is not expected to raise rates in that timeframe either, even if privately some of its hawkish members say it could.