By Wayne Cole and Sruthi Shankar
July 27 (Reuters) - Stock and bond markets across the globe staged a relief rally on Monday as easing Middle East tensions sent oil prices sliding and soothed inflation worries ahead of a packed week of central bank meetings and earnings reports.
U.S. President Donald Trump halted a two-week bombing campaign against Iran, with U.S. officials reportedly concerned over the depletion of air defence weapons. Iran said it would pause its own attacks for as long as the U.S. holds
fire.
The lull in fighting over the Strait of Hormuz saw Brent crude slide 7.8% to $89.41 a barrel, while U.S. crude dropped nearly 7% to $83.2. [O/R]
Europe's STOXX 600 climbed 0.9%, closing in on early July's all-time highs. Economically sensitive retail and travel stocks rallied more than 2%, although a drop in oil stocks weighed on the broader market. [.EU]
S&P 500 futures rose 0.9% and Nasdaq futures jumped 1.4%, setting up Wall Street for an upbeat start. [.N]
Most major currencies advanced against the dollar, as traders slightly pared back the probability of rate hikes from the Federal Reserve this week.
The euro edged up 0.2% to $1.139 and the dollar dipped 0.2% against the yen to 163.64.
The U.S. central bank's decision is due on Wednesday and markets imply around a one-in-three chance of a rate rise, though most analysts doubt Chair Kevin Warsh would be in favour of such a move.
"Since the last FOMC meeting, inflation, labour market and consumption data have all been sufficiently comfortable to prevent the need for aggressive hiking. What was also a source of comfort was that the oil price was closer to $70 than $100," said Samy Chaar, chief economist at Lombard Odier.
Chaar said the relatively elevated oil price creates a window for the hawks at the U.S. central bank to push for rate hikes. "But we're not there yet. I think it depends on how long the tensions in the Middle East persist," he added.
The pullback in oil helped 10-year Treasury yields fall 4.3 basis points to 4.64% on Monday, moving further below last week's 18-month high and set for their largest one-day fall since June 24. European government bond yields also fell across the board. [US/] [GVD/EUR]
The Bank of England will announce its policy decision on Thursday and the Bank of Japan on Friday, and both are expected to hold steady, while remaining cautious about inflation risks ahead.
TECH EARNINGS TO TEST BULLS
About one-third of S&P 500 companies report results this week, with earnings on track to boast a 26.5% increase over last year, according to LSEG IBES data.
With expectations so high and mounting unease over the vast cost of AI capex, even blockbuster results may not be enough to please investors.
The massive sums involved were underlined by a Wall Street Journal report that Nvidia was in talks to provide a roughly $250-billion backstop for OpenAI as part of a data centre project.
Companies reporting this week include tech darlings Microsoft, Meta Platforms, Amazon, Apple and Qualcomm, along with a host of industrial, defence and healthcare stocks.
Yet, in a sign of insatiable demand for anything AI, Chinese chipmaker CXMT Corp soared 466% in its Shanghai trading debut on Monday following Asia's biggest IPO this year.
Data highlights include U.S. advance second-quarter GDP with growth expected to pick up to an annualised 1.5% after a soft start to the year. The June PCE price index, personal income and consumption, weekly jobless claims, second quarter employment cost index and July Michigan consumer sentiment round out the week's diary.
The euro zone's schedule includes flash Q2 GDP, July economic sentiment, consumer confidence, flash inflation and June unemployment.
The Ifo Institute's survey on Monday showed German business morale grew more than expected in July thanks to significantly improved expectations.
In commodity markets, the drop in yields helped non-interest-paying gold climb 1.1% to $4,098.76 an ounce. [GOL/]
(Reporting by Wayne Cole and Sruthi Shankar; Editing by Stephen Coates, Sam Holmes, Mrigank Dhaniwala, Amanda Cooper and Saumyadeb Chakrabarty)
