Despite a sharp sell-off on Wall Street, followed by a strong downside correction in Asia, European markets turned positive after some hesitation at the start of the session. Regional stocks were driven higher amid the reports that Spanish banks Bankia and Caixabank are considering a merger to create the biggest lender in Spain with more than 650 billion euros in total assets. As a result, CaixaBank and Bankia shares jumped 15% and 30%, respectively.
Elsewhere, the Bank of Japan was reportedly mulling upgrading its economic assessment amid signs of a rebound in the Japanese economy. Also, the central bank officials see little need to take further measures at this point following their actions in March.
On the data front, the UK August construction PMI came in at 54.6 versus 58.3 expected. While the recovery in the UK construction sector slowed last month, business expectations continued to improve, rising to a six-month high. In Germany, August construction PMI arrived at 48.0 versus 47.1 prior.
Meanwhile, in his recent speech, the Bank of England’s Saunders noted that additional easing will be appropriate while a rebound in activity appears to be a bit faster than in the May forecast. At the same time, the central bank’s official said that he was not theologically opposed to negative rates but the regulator did not discuss negative rates in the August meeting.
Against this backdrop, the UK FTSE 100 index edges higher by 0.65% to 5,889, Italy’s FTSE MIB rises by 0.97 percent to 19,740, France’s CAC 40 rallies by 0.95 percent to 5,057, while German DAX 30 rises by 0.17 percent to 13,079. U.S. stock index futures are licking wounds after yesterday’s plunge led by losses in the tech sector. Investors keep a cautious tone ahead of the US jobs data due later today.
In currencies, the dollar is nearly flat on the day as trading activity is muted ahead of the US employment report that will set the further direction for the greenback. As of writing, EURUSD was changing hands around 1.1850 following a bounce from one-week lows below 1.18 registered amid widespread dollar strength. The pair barely reacted to the above-mentioned German data, focusing on US jobs numbers. Should the report surprise to the upside, the common currency will likely have to get back below the 1.18 level.
In commodities, oil prices regained the bullish bias after a sharp drop witnessed earlier this week. Brent crude climbed to the $44.50 area, rising along with stocks. However, the overall recovery potential looks modest, with concerns over rising activity in the US shale oil fields and over the outlook for demand recovery along with a stronger dollar are capping the upside momentum in the market.
Nathan Lambert, Head of Global FX Analytical Department