European Shares Seen Up As Bond Yields Retreat On China Deflation Worries

European stocks may open on a positive note Wednesday as global bond yields retreated on signs of increasing deflationary pressures in China.

Government data showed China’s consumer price inflation fell by 0.3 percent year-on-year in July, slipping into deflation for the first time in more than two years.

Factory gate prices extended declines for a 10th consecutive month, down 4.4 percent from a year earlier after a 5.4 percent drop the previous month.

The dollar index also weakened after Fed Bank of Philadelphia President Patrick Harker indicated that the U.S. central bank could be at the end of its current rate-hiking cycle.

Harker also noted that the Fed will start to bring interest rates down sometime probably next year.

Separately, his Richmond counterpart Thomas Barkin argued that there is still time for Fed officials to study data before deciding whether a rate rise in September would be appropriate.

Asian markets traded mixed as hopes for more stimulus measures from the Chinese government offset worries about the U.S. banking system.

Gold edged higher on dollar weakness ahead of U.S. inflation readings that could influence the Fed’s rate outlook.

Oil prices slipped after ending Tuesday’s choppy session higher due to tensions between Ukraine and Russia over blocked ports.

U.S. stocks ended firmly in the red overnight as China trade data disappointed and Moody’s cut the credit ratings for 10 smaller and midsized lenders and put the credit ratings of six large U.S. banks under review for a possible downgrade.

The Dow dipped half a percent, the S&P 500 shed 0.4 percent and the tech-heavy Nasdaq Composite gave up 0.8 percent.

European stocks fell notably on Tuesday, with banks leading losses after Italy approved a 40 percent windfall tax on lenders.

The pan European STOXX 600 eased 0.2 percent. The German DAX lost 1.1 percent, France’s CAC 40 fell 0.7 percent and the U.K.’s FTSE 100 declined 0.4 percent.

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