European equity markets jumped to one-month highs on Wednesday, mainly due to a rebound in Italian stocks, as political tensions eased after Rome moved closer to forming a new government. Rising hopes of avoiding a no-deal Brexit also helped to improve overall investor sentiment. Additionally, news from Hong Kong were cheered by global investors as well. In particular, the legislative assembly reported it would formally withdraw a controversial bill which sparked three months of protests. Hong Kong's shares rose in Asia by the most since 2011 on the news.
Meanwhile, on the trade front, Trump wrote in his tweet that the U.S. is doing very well in negotiations with China, without offering any details. However, neither side has announced specifics on whether an in-person meeting would take place this month. At the same time, the US leader warned that a deal with China will be much tougher of he gets re-elected in 2020.
Against this backdrop, UK’s FTSE 100 adds 0.34 per cent to 7292, Italy’s FTSE MIB rises by 1.56 per cent to 21733, France’s CAC 40 gains 1.09 per cent to 5,525, while German DAX 30 adds 0.92 per cent to 12,020. US stock index futures are also sharply higher on Wednesday, with Dow futures gain nearly 250 points.
On the data front, Eurozone retail sales data came in at -0.6% as expected. The year-on-year figure rose 2.2% versus 2.0% expected. The service PMI also exceeded forecasts, with the index came in at 53.5 in August, revised up from 53.4, slightly up from July’s 53.2. PMI composite was finalized at 51.9, up from July’s 51.5. Meanwhile, Italy PMI composite dropped to 2month low at 50.3, German PMI composite rose to 2-month high of 51.7, and France PMI composite rose to 9-month high of 52.9.
The regional figures were neutral-to-positive in general and gave the additional lift to the euroю EURUSD regained the 1.10 figure on Wednesday after yesterday’s dip to long-term lows around 1.0925. The initial recovery was mainly due to a weaker dollar after some dovish comments by Federal Reserve officials who called for a more aggressive easing in the monetary policy. Then, relatively positive economic data from the Eurozone added to the positive sentiment. As a result, EURUSD extended its local bullish correction to 1.1014 but has yet to confirm a break above 1.10. Dollar decline across the board helped the common currency to ignore fresh dovish comments from the ECB nominated President Christine Lagarde. She pointed to near term risks the Euro area economy faces, persistently low inflation and noted that highly accommodative policy warranted for prolonged period.
Meanwhile, oil prices have settled above the $58 handle after yesterday’s plunge to three-week highs around $57.20. But Brent still struggles to regain a steady upside impetus as traders continue to express worries about lack of progress in the US-China trade talks and further escalation in the conflict. Technically, as long as the futures remain below the $60.50 region, the downside risks prevail.
Nathan Lambert, Head of Global FX Analytical Department