European shares climbed to three-month highs on Monday after the U.S. response to China’s national security law on Hong Kong was not as bad as feared as Trump did not mention actions that could undermine the Phase One trade deal. On the data front, the business activity survey showed China’s factory activity grew at a slower pace in May. On the other hand, momentum in the services and construction sectors quickened. Eurozone PMI Manufacturing was finalized at 39.4 in May, up from April’s 33.4. Despite some recovery in the business activity, manufacturers still recorded sharp falls in new orders and output.
Against this backdrop, the UK’s FTSE 100 sheds 1.03% to 6,154. Italy’s FTSE MIB edges lower by 0.17 percent to 18,320, while France’s CAC 40 declines by 0.79 percent to 4,733. Markets in Germany, Switzerland, Denmark, and Norway are closed for Whit Monday holidays. U.S. stock index futures keep a little lower ahead of North American trading as the sentiment has been tempered by the China trade report while the civil unrest in the US is adding to concerns at the start of the week. According to the report, Chinese government officials have told major state-run agricultural firms to pause purchases of some American farm goods, including soybeans, as Beijing looks to evaluate the recent escalation in tensions between the US and China.
In currencies, the greenback is on the defensive nearly across the board on Monday. EURUSD climbed to the intraday resistance of 1.1150 earlier in the day but failed to make a decisive break above this level and retreated. Furthermore, the euro turned negative on the day in recent trading, clinging to the 1.11 figure. The common currency came under some pressure as fresh economic data out of the Eurozone confirmed a strong negative impact from the coronavirus pandemic as business activity remained weak last month. In the short term, the inability to hold above 1.11 could bring a more aggressive selling pressure.
Oil prices continue to challenge the $38 handle since last Friday. Brent retains a mild bullish tone on Monday after the data showed that Russia’s oil and gas condensate production fell to 9.39 million barrels per day in May, almost reaching its target under the OPEC+ oil output cut deal. Meanwhile, a Kremlin spokesman said that the “OPEC+ talks are ongoing” and that there is “no need to get ahead of ourselves.” There are also reports that OPEC+ countries are moving closer to a compromise on the duration for extending oil output cuts and were discussing rolling over the curbs one to two months. Amid the OPEC-related optimism coupled with positive risk sentiment in the global financial markets, Brent could confirm a breakout of the mentioned level. If so, the bulls will target $40 next.
Nathan Lambert, Head of Global FX Analytical Department