European stocks started the day on a positive note on Friday but turned negative despite a set of strong banking results. Chinese data showed that manufacturing activity declined the most in nearly three years which made concerns over the global economy reemerge. As for the trade, both sides said that progress was still being made in their trade talks. However, some of the key issues, including intellectual property and forced technology transfer remain unresolved, which adds to investor worries. As for the European data, the euro zone inflation slowed down in January as expected and failed to impact the markets.
As such, Britain’s FTSE 100 adds just 0.1 per cent to 6,975, France’s CAC 40 loses 0.05% to 4,990, while German DAX 30 sheds 0.22 per cent to 11,148. US stock index futures point to a mixed open ahead of the quarterly earnings by Exxon Mobil, Chevron, Merck and others.
The greenback turned positive yesterday as traders mostly digested a softer Fed’s tone during the latest meeting. But the dollar appeal remains rather timid as investors continue to price out rate hikes in 2019 and even start to expect rate cuts in 2020. The USDJPY pair is trading in a neutral channel, changing hands below the 109.00 figure as investors don’t express a clear willingness to exit risky trades at the end of the week. The pair is closing in red the second week in a row already and the bearish risks still persist as the sentiment in the global financial markets is unstable.
Sterling extended drop after manufacturing PMI data disappointed. The index came in at 52.8 vs. 53.5 expected, slipping to its lowest level in three months. Moreover, Markit noted that it sees a "clear risk" of a manufacturing sector recession in the UK economy. Such a gloomy report sent GBP/USD below 1.3100, to the daily low of 1.3040. Meanwhile, the UK PM May is trying to convince Labour MPs to support her Brexit deal. Uncertainty on this front remains high and caps the potential upside impetus in the UK currency as well. A daily close below the 1.31 figure will worsen the immediate technical picture for the cable.
Brent crude is under a limited pressure on Friday after several attempts to challenge the $62.50 region earlier this week. The prices have settled around the $61 figure awaiting fresh catalysts. Some investors might had been expecting a more significant progress in the latest trade talks between the US and China but the remaining issues cap the general optimism in the markets and make investors cautious. The reports that OPEC cut its oil output in January failed to impress traders who take it for granted. Meanwhile, the dollar weakness after the Fed meeting doesn’t give a significant support to the oil market, which shows investors still see the glass half empty and continue to worry about the prospects for global demand. Considering such sentiment, Brent is unlikely to make a clear break in either direction any time soon and could continue to oscillate within the established range for a while.
Nathan Lambert, Head of Global FX Analytical Department