European stocks are trending lower on Tuesday, with investors continue to monitor trade developments and also digest the news from the UK, where the opposition lawmakers want to seize control of the House of Commons and stop the country leaving the European Union without a deal on October 31. According to the official statement, the Prime Minister Boris Johnson would call for a snap general election in October if a cross-party group of MPs succeed with a legislative bill to block a no-deal Brexit.
In other news, China has lodged a complaint against the United States at the World Trade Organization over US import duties. This step reinforced concerns over lack of progress in the negotiations and further escalation in the trade dispute between the world’s two largest economies. As a reminder, starting from September 1, the United States began imposing 15 per cent tariffs on a variety of Chinese goods while China began imposing new duties on US crude oil.
Against this backdrop, UK’s FTSE 100 sheds 0.35 per cent to 7255, Italy’s FTSE MIB loses 0.23 per cent to 21402, France’s CAC 40 declines by 0.44 per cent to 5,469, while German DAX 30 sheds 0.36 per cent to 11,910. The US stock index futures are losing ground as well, with Dow futures dropped around 200 points after a market holiday on Monday.
In currencies, the dollar extends the rally against the European counterparts while trading marginally lower against the Japanese yen, which confirms rising safe-haven demand in the global markets. As such, EURUSD dipped to fresh two-year lows around 1.0925 and continues to threaten the 1.09 figure. On the data front, Eurozone July PPO data was in line with expectations at +0.2% versus -0.6% in the previous month. However, the release failed to lift the common currency as USD demand persists. For the downside risks to recede, the pair needs to get back above the 1.10 handle in the days to come.
In the UK, August construction PMI came in at 45.0 versus 45.0 expected, which added to the selling pressure on the pound, suffering from political developments in the country. However, in the latest move, GBPUSD managed to briefly jump to 1.2083 before settling above 1.20 on the news that John Bercow, the speaker of the House of Commons, has confirmed that an application for an emergency Brexit debate has been tabled. Now, there is a chance that the opposition will run through its bill to block Brexit, without allowing the government to table its motion to hold new elections. Earlier, the pair registered a low of 1.1958, the lowest level since 2016. In commodities, Brent crude extends losses for a third day in a row. After failed attempts to settle above the $60 handle, Brent retreated below $58 and registered mid-August lows around $57.70. The sentiment in the market is further undermined by another escalation in the US-China trade dispute in the context of a global economic slowdown and weaker oil demand. Persistent USD demand also prevents the futures from a recovery amid the prevailing risk aversion. As such, path of least resistance now leads Brent south.
Nathan Lambert, Head of Global FX Analytical Department