European stocks extended the rally on Thursday following another record-setting session on Wall Street and mixed results in Asia. Regional stocks have been capitalizing on the euro’s weakness these days after the ECB officials warned about a negative impact if the rising currency on the fragile economic recovery. Investors took it as a hint at additional stimulus measures from the central bank.
Meanwhile, the incoming economic data out of the Eurozone continue to paint a mixed picture. As such, the Eurozone and German service PMIs came in better than expected and stayed above the 50-threshold but pointed to a slower recovery in the business activity while Eurozone retail sales contracted by 1.3% in July versus a gain of 1.0% expected.
Elsewhere, rising tensions between the US and China affected Asian equities on Thursday while European markets shrugged off another diplomatic and trade escalation in the conflict between the world’s two largest economies.
Against this backdrop, the UK FTSE 100 index edges higher by 0.64% to 5,978, Italy’s FTSE MIB rises by 0.68 percent to 19,993, France’s CAC 40 rallies by 1.56 percent to 5,110, while German DAX 30 rises by 1.08 percent to 13,386. U.S. stock index futures are retreating ahead of the opening bell, with risks of a market pullback growing after the recent rally.
In currencies, the dollar extends its broad-based recovery on Thursday, sending the euro to one-week lows earlier in the day. EURUSD briefly pierced the 1.18 handle and trimmed losses quickly but remains under pressure after the recent hints from the ECB ahead of the monetary policy meeting due next week.
GBPUSD is on the defensive as well. The pair has settled below the 1.33 handle and could suffer further losses if the upcoming economic data out of the United States come in better than expected later in the day. If so, the pair could extend its bearish correction to 1.32, or even lower. The BOE governor Andrew Bailey is scheduled to speak later in the day, and his comments will likely affect the cable as well. Any hints at monetary easing and weak economic outlook will add to the negative pressure surrounding sterling.
Meanwhile, oil prices extended losses to one-month lows around $43.50, staying on the defensive after a severe plunge witnessed yesterday. The market was unimpressed by a contraction in the US crude oil inventories by nearly 10 million barrels as gasoline demand contracted, and output in the Mexican gulf has been restoring quicker than expected. Also, Brent is under pressure amid a stronger dollar. In the short term, the prices need to cling to the current levels; otherwise, the futures could derail the $43 figure by the end of the week.
Nathan Lambert, Head of Global FX Analytical Department