European stocks erased early gains to edge lower after fresh economic data showed the euro area’s manufacturing sector slumped in September. Eurozone PMI Manufacturing came in at 45.7 in September, down from 47.0 in August. That’s the lowest level since October 2012 and also the eighth straight month of sub-50 reading. Germany PMI manufacturing hit a 123-month low at 41.7, Spain hit a 77-month low of 47.7 while Italy hit a 6-month low of 47.8. Moreover, jobs are now being cut at the fastest rate since early 2013, which adds to the risk that a deteriorating labor market will hit households down the road.
The data confirmed that the health of the Eurozone manufacturing sector went from bad to worse in September, pointing to raising recession risks in the region. Elsewhere, the U.K. Prime Minister Boris Johnson set to speak at the Conservative Party Conference, along with a formal proposal on the British government’s Brexit plans.
Against this backdrop, UK’s FTSE 100 sheds 0.47 per cent to 7373, Italy’s FTSE MIB gains 0.32 per cent to 22,179, France’s CAC 40 declines by 0.19 per cent to 5,666, while German DAX 30 loses 0.14 per cent to 12,410. US stocks index futures are trading higher on Tuesday morning on the back of renewed optimism in U.S.-China trade talks after earlier concerns raised by reports late last week that the U.S. has been looking at restricting U.S. investments in China including blocking Chinese companies from listing shares on American stock exchanges.
In currencies, the greenback remains on the offensive ahead of fresh economic data and statements from the Federal Reserve officials. EURUSD extended loses to fresh two-year lows around 1.0880 and struggles to get back above the 1.09 handle after dismal economic data from the Eurozone highlighted the recession risks. IN a wider picture, the pair remains firmly within a downside trend and could suffer further losses should dollar demand persist. If US data come on a better side and FOMC officials’ comments are not dovish, the euro may target the 1.0830 area in the days to come.
In commodities, Brent crude turned to a mild recovery mode after yesterday’s decline to fresh lows below the $60 handle. The market is supported by reports that output from the world’s largest oil producers fell during the third quarter. Output from the Organization of the Petroleum Exporting Countries fell to the lowest in eight years in September at 28.9 million bpd, down 750,000 bpd from August’s revised figure and the lowest monthly total since 2011. On the other hand, the news that Saudi Aramco has restored full oil production and capacity to the levels they were at before attacks on its facilities still cap the upside potential for now. As such, the initial task for Brent is to regain the $60 level and target the figures above $61.
Nathan Lambert, Head of Global FX Analytical Department