Euro Edges Up In Relief As Russia Turns The Gas Taps Back On

The euro ticked higher on Thursday on relief that gas began flowing again along the biggest pipeline from Russia to Germany, though growth worries and an expected interest rate hike in Europe kept stocks from extending a modest rally much further.

Nasdaq 100 futures NQc1 and S&P 500 futures inched up 0.2% late in the Asia session, as did FTSE futures FFIc1, while European futures STXEc1 rose 0.4%.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.4% and Japan's Nikkei .N225 crept 0.3% higher after the Bank of Japan stuck to its ultra-easy monetary policy stance. The euro EUR=EBS rose 0.5% to $1.0226. FRX/

The resumption of westward gas flows following summertime maintenance on the Nord Stream pipe scotched fears of an immediate shutdown, though does not change Europe's dependence on the supply of Russian fuels. (Full Story)

The European Central Bank also meets on Thursday to begin Europe's rate-hike cycle. Markets are hedging bets on a hike of either 25 basis points or 50 bps, with the latter perhaps able to further support a euro that has slipped below $1 this month.

"They need to be raising rates to deal with the way inflation is embedded," said George Boubouras, head of research at K2 Asset Management in Melbourne.

"But the dilemma they've got is that the lack of energy security planning has regions of the European Union in a very difficult position...one can only assume that you've got minimal upside and large downside risks to the European economy."

A political crisis in Italy is not helping confidence either, with Prime Minister Mario Draghi's coalition crumbling on Wednesday, sending the premium investors demand on Italian debt over German bonds out to its highest in five weeks. (Full Story)

The Bank of Japan left monetary policy unchanged on Thursday, as expected, and raised its inflation forecasts a little bit. The yen JPY=EBS held steady at 138.19 per dollar. (Full Story)

CHINA CLOUDS

A cloud over Chinese growth due to its strict COVID-19 controls and fresh concern over the ailing property market is also casting gloom over the prospects for global demand.

U.S. President Joe Biden expects to speak to his Chinese counterpart by the end of the month, but markets are sanguine as to whether much of a thaw in Sino-U.S. ties is possible or whether it can arrest economic problems. (Full Story)

Some investors also hoped that a $1.2 billion fine for ride hailing firm Didi might draw a line under several years of regulatory clampdowns on technology firms. The Hang Seng Tech index .HSTECH rose 0.6%. (Full Story)

"The fine should mark the end of Didi's regulatory troubles," said Travis Lundy, an analyst at Quiddity Advisors in Hong Kong.

Elsewhere, the Australian dollar AUD=D3 inched higher, without topping recent highs. It last bought $0.6914. AUD/

Brent crude oil futures LCOc1 hovered at $106.46 a barrel and gold XAU= was unloved at an 11-month low of $1,689.40 an ounce. Bitcoin BTC=BTSP steadied at $22,954 after a Wednesday drop on news that Tesla has sold much of its holdings.

Beyond the ECB, investors have been scaling back bets on a 100 bps rate hike from the Federal Reserve next week, with a 75 bps hike now seen most likely. The retreat has supported stocks, but come in concert with a deepening of economic growth worries.

The benchmark 10-year Treasury yield US10YT=RR held at 3.0303% in Asia, below the 2-year yield US2YT=RR of 3.2275%, a market signal that often presages a recession. US/

Investor pessimism is at its worst since the 2008 crisis, a Bank of America survey showed this week, leading some to start thinking that opportunities may soon emerge. (Full Story)

"Valuations for all growth companies have reset," said Raj Shant, managing director and portfolio specialist at Jennison Associates, a fund manager mostly focused on growth stocks.

"All that valuation premium that we gained through 2020 is all gone. You're back to levels last seen, relative, in the mid teens."

(Editing by Sam Holmes and Kim Coghill)