European stocks opened on a cautious note on Wednesday but managed to accelerate gains amid a series of positive headlines on China virus theme. In particular, China said to have found an effective drug to treat people with new coronavirus. Meanwhile, UK scientists make significant breakthrough in race for coronavirus vaccine. These reports are positive enough to support demand fir risky assets across the board, while upbeat economic data out of the Eurozone added to investor optimism.
Final purchasing managers’ index readings showed that euro zone business activity rose to a five-month high of 51.3 in January from December’s 50.9. German service PMI grew at its strongest pace in five months to 54.2 from 52.9 in December. As for corporate earnings, the French lender BNP Paribas reported better-than-expected fourth-quarter net profit of $2 billion. At the same time, the bank cut its profitability outlook. After an earlier decline by nearly 1%, the bank’s shares turned positive and rallied nearly 1.5%.
Against this backdrop, UK’s FTSE 100 adds 0.77 per cent to 7,497, Italy’s FTSE MIB gains 0.98 per cent to 24,078, France’s CAC 40 is up 1.07 per cent to 5,998, while German DAX 30 gains 1.19 per cent to 13,439. US stock index futures pointed to a lower open earlier but regained strength amid a widespread optimism and now show their readiness to start the session with decent gains.
In currencies, the euro is stubbornly going south despite risk appetite reemerged, and the Eurozone revealed strong economic updates. In recent trading, EURUSD broke below the 1.1030 intermediate support and now threatens the 1.1020 area. A break below will open the way to the 1.10 handle. still, on the negative side, Eurozone retail sales plunged 1.6% in December versus -1.1% expected and +1.0% previously. On the annual basis, sales arrived at +1.3% versus +2.3% expected. A strong consumer demand was registered in November amid a high activity due to Black Friday sales. Should the common currency manage to hold above 1.1020, the pair may retarget the 100-daily moving average around 1.1070. now, market focus shifts to the upcoming US PMI service data due later today.
In commodities, Brent crude managed to initiate a recovery from more than one-year lows registered yesterday below the $54 handle and encountered a local resistance marginally below $56 during the recent trading. The aggressive ascent was due to a China-related optimism, with prices remain above the $55 figure as investors digest the news about a drug to treat people with new coronavirus. Later in the day, the EIA will release its official industry report. Should crude oil stockpiles increase, as the API estimate showed yesterday, Brent will likely trim intraday gains. In a wider picture, the futures remain fragile and may yet plunge to fresh long-term lows should investor sentiment deteriorate again.
Nathan Lambert, Head of Global FX Analytical Department