European stock markets edged lower on Thursday, consolidating after recent strong gains as investors proceeded to profit-taking at attractive levels. Overnight, the German government announced another stimulus package that includes a temporary cut in VAT and one-off handouts for parents of children. Elsewhere, the Bank of England executive director for markets Andrew Hauser noted that negative rates won't happen in the near-term but even if it is decided, it will be the right thing to do at the time. On the data front, Eurozone April retail sales arrived at -11.7% versus -15.0% m/m expected while UK May construction PMI came in at 28.9 versus 29.4 expected. In the US, May Challenger job cuts arrived at 397k versus 671k prior.
As for the key event of the day, the ECB left the policy rates unchanged and boosted PEPP by €600 billion, as expected. In its statement, the central bank said that it will flexibly conduct PEPP purchases while rates will stay at present or lower levels until it nears the inflation target. The regulator also reaffirmed that it stands ready to adjust all instruments as appropriate and expects QE to run for as long as necessary to reinforce accommodative rates impact.
However, the meeting outcome did little to affect investor sentiment. Aa such, the UK’s FTSE 100 loses just 0.04% to 6,380. Italy’s FTSE MIB edges higher by 0.59 percent to 19,757, France’s CAC 40 declines by 0.47 percent to 4,998, while German DAX 30 sheds 0.52 percent to 12,422. U.S. stock index futures also signal a pause in recent rally witnessed amid economic recovery hopes, with Dow Jones Industrial Average futures indicate an opening loss of more than 150 points.
In currencies, the dollar shows some recovery signs as the risk-on tone has waned recently. However, as the ECB refrained from more aggressive supportive measures, the euro climbed back to the positive territory following the recent bearish correction. As a result, the pair registered fresh mid-March highs around 1.1270, so the bulls may soon shift focus to the 1.13 next hurdle. On the other hand, if risk sentiment continues to wane in the short term, the upside potential will be limited from here.
Meanwhile, oil prices turned marginally positive in recent trading but remain vulnerable amid the developments surrounding the OPEC+ deal. There is heightened uncertainty on this front as Saudi Arabia and Russia that reached a preliminary deal to extend production curbs for an extra month said it’s conditional on securing new commitments from other members that they will stick to the agreed quotas. As a result, Brent retreated from local highs registered around $40.50 on Wednesday and fell back to $39 earlier on the day.
Nathan Lambert, Head of Global FX Analytical Department