European stocks slipped on Wednesday, as investors continue to digest the unexpectedly poor U.S. manufacturing data which stoked worries over the world’s largest economy. U.S. manufacturing activity plunged to lows not seen since 2009, fueling worries about the negative impact from the long-running trade dispute between the US and China. Additionally, German economic research institutes slashed GDP growth forecasts for Eurozone largest economy from 0.8% to 0.5% and cut 2020 projections from 1.8% to 1.1%, citing a manufacturing slowdown and high downside risks amid the trade war and Brexit uncertainty.
Against this backdrop, UK’s FTSE 100 sheds 2.03 per cent to 7210, Italy’s FTSE MIB loses 1.23 per cent to 21,657, France’s CAC 40 declines by 1.63 per cent to 5,505, while German DAX 30 loses 1.31 per cent to 12,102. US stocks index futures are deep in the red amid rising fears over an economic slowdown.
In currencies, the dollar demand reemerged after a brief dip yesterday following the release of disappointing manufacturing data. EURUSD slumped to fresh two-year lows on Tuesday but managed to stage a recovery above 1.09. Today, the pair is back under some selling pressure amid stronger greenback and the prevailing risk-off sentiment in the global financial markets.
By the way, the euro could regain some ground by the end of the week should the US jobs and wages data disappoint on Friday. Traders are getting more and more sensitive to the incoming economic reports as the recession risks arise and the odds of more aggressive stimulus measures are increasing. For now, EURUSD will likely continue to oscillate around the 1.09 handle, with downside risks persist as long as the pair is trading below 1.10.
GBPUSD dropped to the 1.2225 area after the UK Markit Construction PMI came in at 43.3, below forecasts of 45 in September. The index confirmed that construction activity continues to deteriorate amid Brexit uncertainty. In his latest speech, the Prime Minister Boris Johnson reiterated that the country is coming out of the EU on October 31, come what may. As there was nothing new in his statements, now all comes down to Europe's response which could bring the additional volatility in the pair. As the cable failed to stay above the 1.23 handle, the bearish risks remain in the short term, with the key support area comes at 1.22 at this stage.
As for commodities, Brent crude remains under pressure, being unable to get back above the $59 handle. In general, the sentiment in the market looks mixed now. On the one hand, prices found some support from API data which showed U.S. crude stocks fell last week by 5.9 million barrels, against expectations for an increase of 1.6 million barrels. On the other hand, concerns over the slowing global growth cap the bullish attempts in the market, with full recovery in the Saudi oil production adds to the negative sentiment.
Nathan Lambert, Head of Global FX Analytical Department