European stock markets are modestly higher on Thursday driven by expectations of a stimulus deal in the United States. Hopes for supportive measures reemerged after the US lawmakers reached a deal to continue funding the government through December. Still, in a wider picture, worries about a resurgence in European COVID-19 cases, the Brexit deal, and the U.S. presidential election continue to persist. On the negative side, European Commission president, von der Leyen, said they have sent a letter of formal notice to the UK over the internal market bill, and that the UK has one month to respond to the EU on the letter.
On the data front, the Eurozone August unemployment rate came in at 8.1%, as expected. Eurozone August PPI arrived at+0.1% versus+0.1% m/m expected. In the UK, the final manufacturing PMI came in at 54.1 in September versus the preliminary estimate of 54.3.
Against this backdrop, the UK FTSE 100 index edges higher by 0.88% to 5,917, Italy’s FTSE MIB gains 0.61 percent to 19,132, France’s CAC 40 rises by 0.54 percent to 4,829, while German DAX 30 sheds 0.04% to 12,754. U.S. stock index futures rally ahead of fresh economic updates – weekly jobless claims and August data on personal income and the Institute for Supply Management’s manufacturing index.
In currencies, the dollar turned lower on Thursday as risk sentiment has improved. Still, the euro struggles to challenge the 20-DMA in a muted trading as traders are gradually shifting their focus to the upcoming US jobs data due on Friday. As long as EUR/USD meets resistance in the vicinity of 1.1770, the dynamics looks neutral. The euro needs to surpass this area to allow for a more sustainable recovery. In a wider picture, the bullish view on the pair is expected to remain unchanged as long as the pair trades above the 200-day SMA that arrives at 1.1245 today. In the short term, the prices may retreat to 1.17 if risk aversion reemerges.
In commodities, Brent crude failed to extend yesterday’s gains and slipped back under the $42 handle in recent trading. The recent spike from two-week lows was triggered by an upbeat report from the EIA that pointed to a decline in crude oil stockpiles by 2 million barrels. However, as traders have digested the data, the bearish slope reemerged despite the prevailing risk-on tone, suggesting the recovery remains fragile, with downside risks persisting along with concerns over demand recovery. If the current pressure intensifies in the short term, Brent could dive under $41 again.
Nathan Lambert, Head of Global FX Analytical Department