European stock markets turned marginally higher on Monday, as investors try to shrug off concerns over the spread of a China coronavirus and U.K.’s departure from the EU which gave way to an 11-month transition period. Over the weekend, the British foreign minister said that the U.K. would not be aligning with EU rules in any post-Brexit trade deal, which suggests the upcoming negotiations will hardly be smooth and easy. In China, the central bank announced that it will inject $173 billion worth of liquidity into the markets in an effort to stabilize the situation. On the data front, both German and Eurozone manufacturing PMIs came in a tad higher than expected, adding to a modestly upbeat sentiment in the regional markets after a plunge in Chinese stocks during the Asian session.
Against this backdrop, UK’s FTSE 100 adds 0.36 per cent to 7,312, Italy’s FTSE MIB gains 0.50 per cent to 23,354, France’s CAC 40 is up 0.18 per cent to 5,816, while German DAX 30 gains 0.14 per cent to 12,999. US stock index futures point to a positive open after dramatic losses on Friday, as investors waiting a fresh portion of corporate earnings scheduled for today.
In currencies, the dollar shifted to a recovery mode after a steep decline at the end of the week amid mainly weak economic data out of the United States. As a result of a correction, EURUSD got back below the 100-DMA and has already wiped out nearly a half of Friday’s gains despite fairly positive European PMIs and better risk sentiment. It looks like traders opted to take profit partially following the short-lived rally, so the downside risks still prevail for the common currency as risk aversion may reemerge at any point. In the short term, the pair needs to hold above the 1.1040 region in order to avoid steeper losses and a break below the 1.10 handle.
USDJPY plunged to three-week lows around 108.30 on Friday and received support in this area at the start of the week. The pair then recovered to the 100-DMA but failed to hold gains and retreated to 108.50. The inability to firmly regain the upside momentum points to the fact that investors remain hesitant and cautious despite the measures taken by Chinese authorities, as the coronavirus continues to spread across the countries. As such, the safe-haven yen demand will likely persist so far, capping dollar’s upside attempts.
In the oil market, Brent crude dipped to more than one-year lows around the $55.80 region and then recovered marginally, having settled above the $56 figure. The sentiment in commodities remains depressed despite the OPEC+ technical committee meeting was rescheduled from March to February 4-5. Citing the coronavirus’ impact on energy demand, the organization and its allies are considering to deepen the oil output cut agreement by an additional 500,000 barrels per day. Should Brent fail to hold above the $56 level in the near term, the futures may refresh long-term lows. However, the recent OPEC+ comments helped to somehow ease the downside pressure in the market.
Nathan Lambert, Head of Global FX Analytical Department