Tracking mixed sentiment in Asia, European stock markets opened marginally lower on Wednesday as investors made a pause after the recent rally in global equities that took Wall Street indexes to fresh all-time highs overnight despite weaker-than-expected manufacturing ISM. On the positive side, the U.K. became the first country in the world to authorize the Pfizer-BioNTech coronavirus vaccine. Also, investors are hopeful for a second stimulus package in the US. As for Brexit, EU chief negotiator Michel Barnier had told envoys that differences between the two sides remain and a deal is hanging in the balance.
On the data front, German retail sales for October rose 2.6% month on month and 8.2% year on year, beating expectations. Later in the day, market attention will shift to the latest private payrolls data from ADP, with economics expecting 475,000 private jobs were added in November, compared to the 365,000 added in the previous month.
Against this backdrop, the UK FTSE 100 index adds 0.24% to 6,400, Italy’s FTSE MIB sheds 0.32 percent to 22,029, France’s CAC 40 is down by 0.10% to 5,575, while the German DAX 30 declines by 0.22% to 13,353. US stock index futures are paring early losses but still lack the directional impetus following a rally witnessed on Tuesday. Apart from the ADP data, investors will focus on the Fed’s Beige Book due later today.
In currencies, the dollar is regaining some ground during the European hours after a plunge to April 2018 lows amid a broad-based sell-off. As such, EURUSD climbed to 1.2087 for the first time in 2.5-years but refrained from challenging the 1.2100 barrier and has shifted into a corrective mode in recent trading. The common currency was also boosted by upbeat economic data out of Germany. Still, the overbought conditions coupled with the waning investor optimism across the financial markets triggered a local profit-taking while in a wider picture, the pair remains within a broader bullish trend while the greenback continues to lose its appeal amid positive vaccine developments and renewed stimulus expectations. In the short term, EURUSD could retreat to the 1.2000 figure before deciding on further direction.
In commodities, Brent crude turned positive on the day after a dip to one-week lows below $47 earlier in the day. Despite the rebound, the upside potential in the market is limited at this stage due to a heightened uncertainty surrounding the OPEC+ decision on output cuts due tomorrow. Later today, the market could be affected by the EIA weekly report. Should the numbers disappoint, Brent could lose the recovery momentum and get back below $47 by the end of the day. On the positive side, the market derives some support from dollar weakness and vaccine news.
Nathan Lambert, Head of Global FX Analytical Department