Following the gains in Wall Street and Asia, European stock markets opened higher on Tuesday as investors continue to monitor the lifting of restrictions in many countries in the region and beyond. Oil and gas stocks are surging more than 4% to lead gains. At the same time, the bullish potential in stocks looks limited as market participants express concerns over the second wave of coronavirus cases.
As for corporate earnings, BNP Paribas reported a net income of 1.3 billion euros for the first quarter, down 33% on an annual basis. Despite weak numbers, the lender’s stocks gained more than 5% in early trade. Total said its first-quarter net profit declined by 35%, to $1.8 billion. However, the result has exceeded expectations and sent the oil producer’s stocks 6% higher.
Against this backdrop, UK’s FTSE 100 gains 1.83 percent to 5,859, Italy’s FTSE MIB adds 1.96 percent to 17,372. France’s CAC 40 rises by 2.44 percent to 4,485, while German DAX 30 gains 2.31 percent to 10,707. U.S. stock index futures are pointing to a higher open, as investor sentiment is helped by rising oil prices and expectations that more economies will move toward easing their coronavirus lockdowns.
Elsewhere, the dollar is nearly flat against the majors after yesterday’s rise due to its safe-haven status. EURUSD has settled around 1.09 and could resume the decline if this support zone fails to initiate a bounce. The euro’s upside potential is capped by recent comments from the ECB governing council member Jens Weidmann. He said that Germany is in a severe economic recession, and a rapid and strong economic recovery is quite unlikely. In recent trade, the common currency dipped to fresh local lows around 1.0885 and may now retarget the 1.0815 support zone.
Meanwhile, GBP bears are so far capped by the 50-DMA. The UK services sector activity contracted less-than-expected last month, to 13.4 in April versus 12.2 expected and a 12.3 – April’s first reading. The pair stays below the 1.25 handle following the release and will hardly be able to stage a sustainable recovery in the near term.
In the oil market, Brent crude has been flirting with the $29 handle, targeting the $30 psychological level on Tuesday. However, the bullish potential remains limited as concerns over global oil demand persist. On the positive side, the futures are buoyed by a gradual easing of lockdowns in many countries. At the same time, if the US-China tensions continue to rise, Brent may easily lose its steam and correct lower along with other risky assets.
Nathan Lambert, Head of Global FX Analytical Department