European markets are trading in a mixed and muted manner on Tuesday as investors prefer to refrain from making major trading decisions awaiting fresh news on the US-China trade relations. Despite the recent reports that the negotiations are in the final stages and the two leaders will hold a summit later this month, there is some skepticism in the global markets that caps investor optimism. In other news, Chinese officials have cut the country’s GDP forecast for 2019 to between 6 and 6.5% from 6.5% earlier. Against this backdrop, Britain’s FTSE 100 adds 0.32 per cent to 7,157, France’s CAC 40 is down just 0.03% to 5,284, while German DAX 30 declines by 0.05 per cent to 11,586. US stock index futures are trading marginally higher with investors continue to monitor US-China trade developments.
The dollar remains on the offensive against major currencies. EURUSD stays depressed marginally above the 1.13 threshold. The near term bearish outlook will likely persist while below the 1.1420 resistance. Interestingly, the pair failed to gain support from mostly better-than-expected European economic data. German services PMI came in at 55.3 versus 55.1 expected, while in the euro area, the index rose from 51.2 to 52.8. On the negative side, the final estimate of Italy’s 4Q GDP, while confirming a technical recession for the struggling economy, was slightly revised up from the preliminary release. In 4Q, seasonally-adjusted Italian GDP contracted by 0.1% quarter-on-quarter and was flat in year-on-year terms from 0.6% in 3Q. Considering the persistent bullish dollar sentiment and lack of risk appetite, the common currency will likely remain under the selling pressure in the short term.
Crude oil prices struggle to regain the upside impetus on Tuesday after the barrel failed to firmly regain the $66 level yesterday. Commodity investors continue to monitor US-China trade developments, with expectations of striking a deal help the market to stay afloat. On the other hand, concerns over the global demand persist against the backdrop of a lower outlook for the Chinese economy. Meanwhile, supply disruption at the 150,000 bpd Nigerian Bonny Light export terminal, that lifted the prices yesterday, doesn’t provide substantial support for the bulls. To make a clear break above the $67 threshold, Brent needs a clear fundamental catalyst like a decline in the US shale production and stocks, a trade deal between the US and China, or strong economic signals from major countries. In the short term, Brent will likely continue to oscillate in the familiar range, struggling to find a clear direction.
Gold prices are extending the decline for a fifth day in a row already. The bullion is trading close to January 25 lows below $1283, registered yesterday. Over the past three weeks, the yellow metal has given up a part of gains from an aggressive three-month rally. The correction phase will likely continue in the short term, considering a robust dollar demand and lack of obvious risk-off sentiment in the global financial markets. The key bearish driver for gold at the moment is the potential trade deal between the US and China that could happen soon. These prospects put downward pressure on safe-haven assets, including gold. At the same time, the updated forecast for gold prices by Goldman Sachs showed that the bank now expects the precious metal to touch $1,350 in three months, up from a previous forecast of $1,325.
Nathan Lambert, Head of Global FX Analytical Department