After a flat opening, European markets are pushing higher on Tuesday as risk sentiment shows improvement on the day, with regional stocks climbed to nine-week highs lead by energy shares. The oil giant BP reported a double growth in its profits in 2018, but the company’s UK shareholders won’t see that reflected in their latest dividend payouts.
Against this backdrop, Britain’s FTSE 100 adds 1.39 per cent to 7,131, France’s CAC 40 is up 1.07% to 5,053, while German DAX 30 rises by 1.23 per cent to 11,314. US stock index futures are moved higher in premarket trade, although gains look relatively modest. Technology shares could come under pressure after Google-parent Alphabet reported rising costs – the company’s expenses rose 26% to $31 billion, outpacing revenue growth of 21% in three months ended in December 31.
The dollar extends its recovery as traders have finally left behind a dovish twist by the Federal Reserve. Market optimism is also due to the expected Trump’s State of the Union address. Investors hope to hear some positive comments from the President. The rising US 10-year Treasury yields gives the greenback the additional support, along with decent economic data from the US. In contrast, the euro zone January final services PMI came in at 51.2 versus the preliminary estimate of 50.8 and 51.2 earlier. Composite PMI declined to 51.0 from 51.1 in December and was close to the lowest reading since July 2013. Despite the final numbers were somehow better than initial estimates, concerns remain that the region’s economy continues to slow down at the start of a new year. Moreover, euro area December retail sales declined by 1.6%, in line with expectations, while the prior result was revises from +0.6% to 0.8%.
The unimpressive regional data put the euro under additional selling pressure. EURUSD slipped to February lows marginally above the 1.14 threshold. Should the dollar preserve the bullish impetus in the short term, the pair could challenge the important level. A break below will open the way towards the intermediate support around 1.1380. On the other hand, if the buck struggles to extend the rally the common currency could recover from the current lows and trim losses.
After a series of weak PMI prints last week, the pound got a fresh portion of weak data. The composite reading came at 50.3 – close to flat levels of economic activity and the lowest since July 2016. The reemerging worries over no-deal Brexit add to the downside pressure on the pound. As such, the GBPUSD pair accelerated its decline on Tuesday, after a break below the 200-DMA at 1.3040. The prices dipped to nearly two-week lows and derailed the psychologically important 1.30 level, although it may yet cap the selling pressure. Otherwise, the pair may stay afloat but Brexit uncertainty will still weight. The next major event for the sterling is the Bank of England’s ‘Super Thursday’ that includes the decision on rates, the release of the meeting minutes and the quarterly inflation report. Also, on Thursday, Theresa May meets with Juncker in Brussels.
Brent crude struggles to regain the upside impetus on Tuesday. The prices were once again rejected from the $63 barrier and turned lower despite the lingering uncertainty surrounding sanctions against Venezuela. Meanwhile, positive risk sentiment doesn’t help the commodity amid a stronger dollar. The longer Brent remains below the mentioned resistance, the more evident the downside risks become. At the same time, as long as the barrel stays above $60, the selling pressure remains limited.
Nathan Lambert, Head of Global FX Analytical Department