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Written by
Sam Unsted
Written by

Sam Unsted

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(Bloomberg) --

Good morning. Europe's biggest stocks entered a bull market, U.K. bond yields are sinking and the U.S. is throwing around currency manipulation allegations. Here's what's moving markets.

Bull Market

The Euro Stoxx 50 index closed in a bull market on Wednesday, continuing to enjoy a rally driven by the trade truce between the U.S. and China and bets on easier monetary policy from central banks. The Dow Jones Industrial Average also closed at a record high on a half-day of trading before the Independence Day break. The day off provides time to take stock of what was a very busy first half for IPOs in the U.S., a trend that shows no sign of abating, and a quiet one for cross-border M&A, which also seems likely to continue.

Rock-Bottom Yields

Yields on U.K. government bonds fell below the Bank of England's policy rate, following the trend across European bonds as investors charge into the asset class seeking safety from ugly economic forecasts. BOE Governor Mark Carney is also the favorite to take over from Christine Lagarde at the International Monetary Fund as she is poised to take the helm of the European Central Bank. Her past comments about monetary policy are now being pored over for hints about what kind of ECB chief she'll be.

Manipulators

It was broadly brushed off by markets, save for a fall in the dollar, but U.S. President Donald Trump went on the attack against the European Union and China by calling them currency manipulators only days after the trade ceasefire was agreed. The tweet raised questions about whether the U.S. Treasury could intervene in currency markets, something it hasn't done since 2011. The Federal Reserve, so often the target of Trump's ire, is also getting a clear signal from bond markets that inflation is not going to heat up on its own and intervention of the monetary policy kind might just be needed.

Italian Rally

Italian stocks and bonds soared on Wednesday as the country managed to make sufficient tweaks to its budget deficit targets to avoid being censured by the European Union. That decision marks a significant detente in the battle between Italy and the EU over the country's finances, but it is very possible this is not the last time the two will clash. Matteo Salvini, Italy's deputy prime minister, had been hoping to be dealing with a line-up of fresh faces at big European institutions after the top jobs were handed out, ones that may be more sympathetic to his policy aims. Instead, it's a traditional Franco-German leadership, so watch this space.

Coming Up...

Asian stocks were mixed after gains in the U.S. and Europe on Wednesday. European stock futures are pointing to a moderately positive open. Oil slipped back a little but the gold rally is continuing. It's Independence Day so the U.S. will be off barbecuing and awaiting fireworks displays. European Central Bank Chief Economist Philip Lane and ECB Vice President Luis de Guindos will both speak in a week when the future of the bank's policy is in sharp focus.