European stocks are neutral-to-negative on Monday as investors refrain from risk-taking at the start of a new trading week, after a decent US employment report and somehow unconvincing US-China trade talks last week. Trump said over the weekend that trade negotiations are doing very well but market participants continue to fear that the two countries will manage to make a deal before the deadline on March 1. The region’s auto stocks, including Renault and Hella, are losing over 1.5% today, along with other companies with a large exposure to China. Such dynamics shows that investors are still focused on trade and growth concerns. By the way, fresh data from Europe confirm the slowing economy as construction activity in the UK slid to the lowest level since March 2018, underlining the effect from Brexit uncertainty. Meanwhile, euro area Sentix economic index missed expectations and fell for the sixth month in a row.
Against this backdrop, Britain’s FTSE 100 adds 0.35 per cent to 7,044, France’s CAC 40 loses 0.50% to 4,994, while German DAX 30 sheds 0.21 per cent to 11,156. US stock index futures are flat ahead of Google owner Alphabet’s fourth-quarter financial results. Additionally, investors continue to digest the disappointing sales forecast from Amazon presented last week.
The dollar is trading marginally higher against major rivals but fails to make more decisive recovery attempts, still being capped by the recent Fed’s dovish shift. Friday’s jobs data didn’t lift the buck as wages growth missed expectations severely. Meanwhile, the incoming euro zone data continue to signal a downturn. As such, the Sentix overall economic index missed expectations in February at -3.7 versus -1.3 expected and -1.5 prior. It is the lowest level since November 2014 and the sixth month of decline in a row. The current situation fell to 10.8 from a prior 18.0. In Germany, the index fell to 3.1 from a prior 6.1 – the lowest reading since August 2012. On Tuesday, the euro area publishes PMI services data. Should the numbers disappoint again, the short-term downside risks for the pair will increase. The key obstacle for the bulls remains around the 1.15 barrier, while on the downside, a break below the intermediate support 1.1430 will open the way towards 1.14.
Oil briefly jumped to nearly two-month highs around $63.60 but failed to sustain the momentum and turned lower quickly as traders preferred to take profit at higher levels instead of pushing Brent above the next hurdle of $64. The spike was based on a better sentiment around the OPEC-led supply cuts, where Saudi Arabia continues to signals declines in its output. The additional upside pressure comes from the US sanctions against Venezuela’s petroleum industry. These factors coupled with some progress in trade talks help to offset concerns over weaker global demand and the economic slowdown. On the other hand, these fears are here to stay as long as the major countries continue to signal the slowing growth and will likely further cap the upside potential in prices. After a short-lived rally, Brent dipped to lows around $62 and could well finish the day in the negative territory if the dollar demand persists in the short term.
Gold prices continue to retreat from nine-month highs registered last week. The bullion was rejected from the levels above $126 and corrects lower since then. Apart from profit-taking and overbought conditions, the selling pressure on the yellow metal has intensified on Monday due to dollar rebound. However, the bullish trend in the market remains intact as long as gold remains above the 100-DMA around $1270, while the key immediate support comes at $1300. Should this level withstand the downside pressure, the bullion could resume the rally as the dollar may face risks from the political situation in Washington by mid-February.
Nathan Lambert, Head of Global FX Analytical Department