European stocks tumbled on Monday amid a fresh spat between the United States and China over the coronavirus crisis. On Friday, U.S. President Donald Trump threatened to slap new tariffs on China over the COVID-19 pandemic. U.S. Secretary of State Mike Pompeo said there was “a significant amount of evidence” that the virus emerged from a Chinese laboratory, which added to the negative sentiment in financial markets. Also, investors are weighing fears of a second wave of infections and digest the incoming dismal economic data out of major countries.
On the data front, IHS Markit final manufacturing Purchasing Managers’ Index for the Eurozone dipped to 33.4 in April, its lowest since the survey began in 1997. April ISM New York index business conditions deteriorated to 4.3 versus 12.9 previously.
Against this backdrop, UK’s FTSE 100 gains just 0.21 percent to 5,775, Italy’s FTSE MIB sheds 2.66 percent to 17,220. France’s CAC 40 loses 3.89 percent to 4,394, while German DAX 30 declines by 3.30 percent to 10,503. U.S. stock index futures are pointing to a negative open amid growing U.S.-China tensions. Also, airline stocks are in focus today after Warren Buffett announced that he'd dumped stakes in major US carriers. Shares of the carriers are down 10% pre-market.
Meanwhile, the dollar is trading higher due to the rising safe-haven demand. EURUSD corrected lower from one-month highs above 1.10 and is now clinging to the 1.09 level. Once below it, the common currency may suffer deeper losses in the near term, with weak economic data out of the Eurozone adding to the downbeat sentiment surrounding the euro.
USDJPY struggles for direction on Monday. The pair has climbed marginally from intraday lows around 106.60 and turned slightly positive on the day. However, as risk-off sentiment prevails, the pair will hardly be able to see more sustainable gains in the near term. On the upside, the immediate resistance arrives at 107.00. A daily close above this level ill mark a slightly better short-term technical picture.
Elsewhere, oil prices are trading higher on Monday. Brent crude is trying to regain the $27 handle after a rejection from local highs around $27.85 late last week. Despite the current upside bias, downside risks persist in the market amid a fresh spat between the United States and China over the origin of the virus and a gloomy outlook for global demand. On the positive side, the prices are slightly supported by the fact that OPEC+ production cuts came into effect this month, while coronavirus pandemic lockdowns start to ease in some countries.
Nathan Lambert, Head of Global FX Analytical Department