In This Article:
* European stocks subdued as gas crisis worries mount
* Heavy slate of tech earnings due on Wall Street
* Bond yields ease ahead of expected Fed rate hike
By Marc Jones
LONDON, July 26 (Reuters) - European shares limped lower and the region's bond markets rallied on Tuesday as some disappointing earnings, this week's looming U.S. interest rate hike and an escalating gas crisis kept the mood cautious.
Asia had been buoyed overnight by new Chinese plans to tackle its property crisis and by tech giant Alibaba applying for a primary listing in Hong Kong, but Europe couldn't keep it going.
The pan-European STOXX 600 index stalled as higher commodity stocks and a profit upgrade from consumer giant Unilever were offset by a 6% dive in UBS shares and broader recession fears.
"The key question we have as these earnings come out is how much pricing power do these (consumer facing) firms have," said Diamond Hill international equities portfolio manager Krishna Mohanraj, referring to the pressures of higher inflation.
Shares in U.S. retailer Walmart had slumped 10% after the bell after it slashed its forecasts on Monday due to those exact issues..
But Unilever, which makes everything from laundry detergent to ice cream, raised its full-year profit forecasts in Europe owing to what its CEO Alan Jope said had been "strong pricing to mitigate input cost inflation".
European Union countries were also preparing to approve weakened emergency proposals to curb their gas usage. Russia's Gazprom had warned on Monday that it would reduce flows further this week due to another maintenance issue.
Dutch and British "day ahead" prices jumped 8% and 16.5% respectively on Tuesday and a fall in euro zone bond yields in the fixed income markets came with analysts now increasingly pricing in a recession in the bloc.
"The potentially forced 15% reduction that all member states would have to adhere to was very unpopular amongst several members," Deutsche Bank's Jim Reid said. "Expect lots of carve-outs and compromises to appear if a plan that can progress is agreed upon".
Investors are also awaiting a likely 75 basis point Federal Reserve interest rate increase on Wednesday - with markets pricing about a 10% risk of a larger hike, as well as waiting to see whether economic warning signs prompt a shift in rhetoric.
The International Monetary Fund is set to publish its closely watched world forecasts later which are expected to point to even slower growth and higher inflation.
"We are leaning to the view that 75 bps is most likely but won't be the end unless they see some demand destruction and some tempering of inflation," said John Milroy, an investment adviser at Ord Minnett.