European shares started the new month on a firmer footing, with the pan-European STOXX 600 index hit a two-week high due to the general improvement in investor sentiment globally and strong company earnings in the region. However, the optimism was partially curbed later, after Xi Jinping said that China’s economy is facing increasing uncertainties and downward pressure. On the positive side, there are reports of a financial service deal between Britain and the EU. Investors took this as a sign that the two sides are close to a post-Brexit deal on financial services. As such, Britain’s FTSE 100 adds just 0.08 per cent to 7,135 after a more robust rise earlier in the day, France’s CAC 40 turned sour and declines by 0.18 per cent to 5,083, while German DAX 30 gains 0.33 per cent to 11,484. US stock ate trading mixed after two days of gains.
The dollar fell the most since July on Thursday. The European currencies regain the ground aggressively amid the widespread sell-off in the USD. The US Q3 preliminary non-farm productivity came in at 2.2% vs. 2.1% expected, while the prior quarter result was revised from 2.9% to 3.0%. Unit labor costs also came in better than expected, at +1.2% vs. +1.0%. Despite the robust report, the greenback remained under a heavy pressure as the pound bulls and better risk sentiment are driving the markets today. By the way, the US final October Markit manufacturing PMI was at 55.7 vs. 55.8 expected, which added to the negative pressure on the US currency.
The Bank of England “Super Thursday” fuelled further rally in sterling. The central bank left the rates unchanged as expected, while Carney’s comments were mixed. He mentioned that a no-deal, no-transition scenario was unlikely but the country must prepare for it. The BoE governor also said that expectations of households and businesses diverging from forecasts. In other words, he considers the central bank’s forecasts too optimistic. However, this failed to prevent the pound from further rally as traders are focused on Brexit developments and continue to cheer the financial service deal. The soft UK October manufacturing data (51.1 vs. 53.0 expected) haven’t scare off the bulls as well. As such, GBPUSD could rise even higher from the current levels should we see some other positive Brexit-related news in the days to come. The pair jumped above 1.29 and registered a one-week high of 1.2933. A daily close above the psychological mark will signal a stronger footing for sterling.
EURUSD is on the rise in tandem with the cable but the impetus looks more modest as the euro has no additional support except for weaker dollar. The pair found a bottom at the 2.5-month lows around 1.13 and was rejected from this psychological support. But the price fails to regain the 1.14 handle so far, despite the global USD sell-off continues. Against this backdrop, the single currency may resume the decline and get back to mentioned lows should the buck receive a needed impulse for a recovery. Tomorrow’s employment report could serve as the catalyst for this rebound if the jobs and wages numbers don’t disappoint and cement further rate hike expectations in the US.
Brent crude switched to a consolidation phase after the recent steep declines. The barrel found a bottom marginally above the $74 figure and is now licking its wounds in the $74.60 region. Traders seem to take a wait-and-see mode at this stage as the bears need to take a pause following an aggressive sell-off, while the bulls need some inspiration to drive the prices north. The record US shale production, which increased by 300K barrels last week, fuelled steep declines in the crude oil market as fears of supply shortfall continue to abate. Today, the weaker dollar has helped Brent to refrain from a deeper decline, while the general picture remains quite negative. Brent needs to regain the $75 level to avoid another selling wave in the near term.
Nathan Lambert, Head of Global FX Analytical Department