* Eyes on Fed minutes, Jackson Hole meeting for rate outlook
* Renault , Fiat tie-up hopes boost shares
* U.S. President Trump says he had to 'take China on'
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
(Updates prices, adds U.S. futures)
By Tom Arnold
LONDON, Aug 21 (Reuters) - European stocks rallied on
Wednesday as hopes for more monetary and fiscal stimulus helped
assuage worries about global recession, political turmoil in
Italy and endless trade wars.
Traders are waiting for the Federal Reserve's annual Jackson
Hole symposium later this week and a Group of Seven summit this
weekend for clues on what steps policymakers will take to boost
economic growth.
Much depends on what the Fed does with U.S. interest rates,
making markets hyper-sensitive to the minutes - due later on
Wednesday - of its last meeting.
"People are looking ahead to Jackson Hole later this week
and the message that [Fed Chairman] Jerome Powell may or may not
give us on the direction of monetary policy. That is the
highlight of the week and we are waiting with bated breath,"
said Andrew Milligan, head of global strategy at Aberdeen
Standard Investments.
Futures 0#FF: are fully priced for a quarter-point cut in
rates next month and cuts of more than 100 basis points by the
end of next year. FEDWATCH
Morgan Stanley (NYSE:MS) economist Ellen Zentner advised clients to
watch for the use of the word "somewhat" when Powell describes
future policy.
"Acknowledgment that downside risks have increased with no
characterisation of 'somewhat' could be taken as confirmation
that it is likely the Fed makes a larger cut in September,"
Zentner wrote in a note.
With so much riding on the Fed, investors were cautious and
volumes subdued, but gains extended later in the session. The
Euro STOXX 600 .STOXX was up 1.1% to its highest since early
August, with Italy .FTMIB outperforming after a rout yesterday
following the resignation of Italian Prime Minister Giuseppe
Conte. Shares in Milan-listed Fiat Chrysler FCHA.MI climbed 4.0%
after Italian media reported that talks between Fiat and Renault
RENA.PA never stopped. That put the STOXX 600 Autos Index
.SXAP on track for its best day in a month. France's CAC 40
Index .FCHI was set for its best day since Aug. 8.
GEA Group G1AG.DE , a German food-processing-machinery
company, and outsourcing group Capita CPI.L gained more than
5% after Goldman Sachs (NYSE:GS) upgraded its rating on the stocks.
In the U.S., stock index futures pointed to a stronger
opening, with Dow e-minis 1YMcv1 up 0.65% and S&P 500 e-minis
EScv1 0.73% higher.
Upbeat earnings reports from retailers Lowe's Cos Inc
LOW.N and Target Corp (NYSE:TGT) TGT8.N reflected robust consumer
demand, helping ease some concern about slowing economic growth.
President Donald Trump showed no signs of backing down in
his tussle with China, declaring on Tuesday a confrontation was
necessary even if it hurt the U.S. economy in the short
term. Shortly afterward, the U.S. government approved an $8
billion sale of Lockheed Martin (NYSE:LMT) LMT.N F-16 fighter jets to
Taiwan, a move sure to draw Beijing's ire and further dim
prospects for a trade deal.
Political turmoil in Italy, Britain and Hong Kong has also
heightened uncertainties.
Italian bond yields steadied after falling on Tuesday, as
Italian President Sergio Mattarella began two days of talks that
will lead either to formation of the country's 67th government
since World War Two or to early elections.
Germany sold 30-year bonds with a negative yield for the
first time at an auction on Wednesday, a milestone for a
fixed-income market where the entire curve now yields less than
zero. STIMULUS
Alarm bells started ringing last week when yields on U.S.
10-year notes fell below two-year yields for the first time
since 2007, an inversion that has preceded previous recessions.
That was enough to prompt Trump's administration to look for
ways to stimulate the U.S. economy In addition, the central banks of the euro zone, Australia
and China are all expected to further loosen monetary policy
this year. Germany is considering fiscal stimulus.
Those prospects have driven yields lower. Benchmark
U.S.10-year Treasury yields US10YT=RR stood at 1.57% on
Wednesday, down from a high of 1.625% on Monday.
Currency markets were mostly subdued. The euro weakened to
$1.1097 EUR=EBS . The dollar, measured against a basket of
currencies, rose 0.1% to 98.228 .DXY . Sterling was last down 0.4% at $1.2126 GBP=D3 and 0.4%
lower versus the euro at 91.52 pence EURGBP=D3 .
In commodities markets, U.S. crude CLc1 rose 72 cents
to$56.90 per barrel. Brent LCOc1 added 1.7% to $61.07.
Spot gold XAU= was weaker at $1,498.15 an ounce.