European shares inch up on solid German information, stimulation hopes

With euro zone inflation well below target market participants are betting that the ECB will cut its interest rate on bank overnight deposits for the first time since 2016 when it meets on Thursday. ­­—. — Reuters pic

With euro zone inflation well below target market participants are betting that the ECB will cut its interest rate on bank overnight deposits for the first time since 2016 when it meets on Thursday. ­­—. — Reuters pic

European shares are expected open mostly higher ahead of the European Central Bank meeting later this week where the central bank is expected to unveil a comprehensive stimulus package.

Germany's 10-year Bund yield rose to a one-month high at minus 0.565 percent, while longer-dated 30-year bond yields closed at minus 0.036 percent on Monday.

Benchmark U.S. 10-year notes US10YT=RR last fell 1 point in price to yield 1.7333%, from 1.622% late on Monday.

With euro zone inflation well below target, market participants are betting that the ECB will cut its interest rate on bank overnight deposits for the first time since 2016 when it meets on Thursday.

However, there is a growing chorus of opinion that ECB policymakers and other central banks with negative interest rates and sub-zero long-term sovereign bond yields are nearing the limits of stimulus policies.

"As we wait on news on Thursday morning, it's not surprising that people have the jitters of what they're going to hear from the European Central Bank, which has been the focus of attention since the beginning of August", said Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee.

The U.S. Federal Reserve is also widely expected to cut interest rates next week as policymakers race to shield the global economy from risks, which also include Britain's planned exit from the European Union.

On Wall Street, stocks were lower, weighed down in part by technology shares as data from China showing producer prices had their sharpest pace of declines in three years in August renewed global recession worries. The climb in yields also weighed on the real estate sector .SPLRCR , which suffered its biggest percentage drop in almost a month.

German exports rose 0.7% in July versus expectations of a drop of 0.5%, indicating resilience in the face of impact from tariff disputes and Brexit uncertainties.

The pan-European STOXX 600 index was up 0.1 per cent at 0715 GMT.

And climbing bond yields helped lift European banking stocks 1.8%, making financials the best performing sector on the continent. They have risen 9% in the past five days in one of their strongest rallies since April 2017.

On Tuesday, Finance Minister Olaf Scholz said the country is ready to pump "many, many billions of euros" into the economy to prevent any significant slowdown in growth.

That set the tone for early European trade with the pan-region Euro Stoxx 50 futures STXEc1 down 0.09%, German DAX futures FDXc1 off 0.12%, and FTSE futures FFIc1 0.09% lower.

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