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Title: ECB's time to hike, Italy's time for more instability

Jul 21, 2022 03:25AM ET

By: AnalysisWatch

An overview of the upcoming market day

If the European Central Bank's inflation headache isn't enough, its first rate hike since 2011 will happen on the day the government of the third-largest member state, Italy, looks set to collapse.

Mario Draghi's time as prime minister may be over after his coalition partners refused to heed his call for unity.

Stocks have fallen and Italian borrowing costs have risen, causing concern at the ECB, which is desperately trying to contain market tensions in its most indebted members.

However, the euro is appreciating, helped by news that Russian gas is flowing again through the Nord Stream pipeline after a 10-day maintenance shutdown.

Investors are now anticipating the bigger, though less dramatic, event of the day.

The meeting has become more uncertain after sources this week said the ECB was considering a 50 basis point rate hike rather than the 25 previously indicated.

The other question is what details the ECB might provide on the planned instrument to contain bond market tensions. The recent turmoil in Italy makes this task even more urgent.

The ECB may look with some envy at the Bank of Japan, which earlier on Thursday kept interest rates ultra-low and signalled its determination to stay out of the policy tightening wave.

Key events that should give markets more guidance on Thursday:

The central bank meetings in Turkey and South Africa

Blackstone, Dow Chemical Company, Freeport-McMoRan Copper & Gold, AT & T, Philip Morris International, Travelers Companies Inc., American Airlines, Twitter, and Mattel.

Gains in the EU: Ocado, SAP, Dassault.

Initial U.S. jobless claims/Philadelphia Fed business index

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