Risk Appetite Returns To Europe Ahead Of Crucial Week

World stocks, U.S. futures, oil prices and bond yields all rose on Monday as scaled back bets on the latest Federal Reserve rate hike next week and support pledges for China's economy lifted the mood.

European equities started the week more than 1% higher [.EU]and the euro was pushing up and away from parity at $1.0138 with a big week coming up.

The European Central Bank is set to raise rates for the first time in more than a decade on Thursday, the same day the bloc will be hoping Russia resumes gas supplies. Oh, and Italy is once more in the grip of a political crisis.

The pan-European STOXX 600 index was 1.1% higher by 0925 GMT after posting a 0.8% drop last week. Gains on Monday were broad-based, with miners, energy stocks and banks leading the rise.

"It is a wild week this week, there is so much going on," said James Rossiter, Senior Global Strategist at TD Securities.

"The ECB is a huge focus, there is not a lot of scope for the ECB to surprise, 25 bps is locked in I think... and then there is Italy and Nord Stream too."

Italy's borrowing costs rose sharply again on Monday and the premium investors demand for holding Italian debt over safer German paper was at its widest in a month as political turmoil in Europe's fourth largest economy rumbled on.

Prime Minister Mario Draghi attempted to resign from his post on Thursday after the 5-Star Movement, a coalition partner, failed to back him in a confidence vote. Draghi's resignation was rejected by the Italian president.

Draghi is expected to address parliament on Wednesday but Italy's 10-year bond yield rose 10 basis points (bps) on Monday to as high as 3.48%, pushing the closely watched spread over German Bund yields to its widest level in over a month at around 235 bps.

"We expect volatility to remain high until then in response to various rumours concerning whether he will remain firm on his resignation or whether he is willing to remain in place," UniCredit analysts said in a note.

"Any indication that could increase the likelihood of early elections will ultimately be negative for BTPs and drive the spread wider."

Overnight, a gauge of Asian shares rose more than 1%, its biggest daily rise in nearly two months, boosted by a jump in Chinese shares as regulators encouraged lenders to extend loans to qualified real estate projects.

It came too as the high-flying dollar, which has had its strongest start to a year in recent memory, eased on Monday. [/FRX]

The uncertainty will haunt the ECB at a policy meeting where it is likely to kick off a tightening cycle with a rise of 25 bps, with markets hanging on details of an anti-fragmentation tool intended to ease pressure on borrowing costs for the Union's most indebted members.

Friday's rally on Wall Street reverberated through global markets with MSCI's broadest index of Asia-Pacific shares outside Japan up 1.4%, having shed 3.5% last week.

A wider index of global stocks was up 0.4%. Chinese blue chips added 1.0% as the head of the country's central bank pledged to help the economy, though Shanghai had also announced more districtwide coronavirus testing. []

U.S. stock futures were up more than 1% in early London trading.

Traders are back to expecting a 75 basis point interest rate hike from the Federal Reserve next week, after flirting with the prospect of a 100 basis point move to hammer inflation.

Corporate earnings will be in sharp focus this week with Goldman Sachs Group Inc, Bank of America Corp, International Business Corp, Netflix Inc, Tesla Inc.O and Twitter Inc due to report.

Of the 35 companies in the S&P 500 having reported, 80% have beaten Street expectations, according to Refinitiv. Analysts now expect aggregate year-on-year second-quarter profit growth of 5.6%, down from 6.8% at the beginning of the quarter.

Rising interest rates and a firm dollar have been a major drag for non-yielding gold which was stuck at $1,713 an ounce after shedding 2% last week. [GOL/]

Oil prices rose in the risk-on wave. President Joe Biden continued his trip to the Middle East hoping to get agreement on an increase in output, having seemingly come away from Saudi Arabia empty handed. [O/R]

Saudi Arabia's foreign minister said a U.S.-Arab summit on Saturday did not discuss oil and that OPEC+ would continue to assess market conditions and do what is necessary.

After an early dip, Brent crude added $2.54, or 2.5%, to $103.70 a barrel, after a 2.1% gain on Friday.