European stock markets plunged after a positive start on Thursday, as fresh coronavirus-related headlines have deterred buyers. According to the latest news, the first death from coronavirus was registered in Switzerland while Germany reported a rise in cases over the last 24 hours. In California, where the first death from COVID-19 was recorded today, a state of emergency was declared. Meanwhile, Italy is considering asking for a temporary suspension of European Union budget rules as it struggles to contain a coronavirus epidemic.
Adding to woes in Europe, the EU chief Brexit negotiator Barnier said that difficulties of the end of the transition period are being underestimated, and there are still many serious divergences with the UK. Earlier in the day, the UK PM spokesman James Slack noted that there will be no delay to the Brexit transition period due to coronavirus outbreak.
Against this backdrop, UK’s FTSE 100 sheds 1.67 percent to 6,703, Italy’s FTSE MIB is down 1.78 percent to 21,555, France’s CAC 40 declines by 1.90 percent to 5,361, while German DAX 30 loses 1.66 percent to 12,926. U.S. stock index futures point to a negative open, as investors express skepticism about the ability of global authorities to contain the spread of the coronavirus. Futures for three major indices are losing over 1% before the start of the session.
The dollar is trading lower against major rivals but the downside momentum has slowed somewhat ahead of Wall Street open, as risk aversion underpins the safe-haven US currency. As such, EURUSD intraday rally was capped by the 1.12 psychological level, and a firm break above this local barrier is unlikely now, as risk sentiment has deteriorated again.
GBPUSD registered daily highs above 1.2930 earlier in the day but trimmed gains since then after Brexit-related headlines. In particular, EU’s Barnier said that difficulties of the transition period are being underestimated. Besides, traders are getting more cautious ahead of carney’s speech later today. It is possible that the bank of England governor will signal a potential rate cut at the March meeting, which is sterling-negative. There are also technical hurdles for GBP bulls as the pair may struggle to clear a local resistance around 1.30, where the 100- and 50-DMAs lie.
As for oil, Brent crude has got back above the $51 level but fails to regain the recent recovery momentum, showing a mild bearish bias on the daily timeframes during the European session. The OPEC+ meeting is now in market focus, with the group announcing its final decision on Friday. It remains unclear whether Russia will join the initiative to make additional production cuts by 1 million barrels per day, and this uncertainty prevents the futures from a recovery. Also, the market remains sensitive to virus-related headlines that still leave mush to be desired. As such, downside risks persist for Brent in the near term.
Nathan Lambert, Head of Global FX Analytical Department