After Wall Street delivered its second best day of 2019 trading yesterday, European stocks are on the rise Wednesday as investors are betting on Fed rate cut after the dovish statements from the US central bank officials. Yesterday, Jerome Powell promised to act “as appropriate” to combat rising trade war risks, in addition to similar hints from St Louis Fed chief James Bullard a day earlier. Meanwhile, during his state visit to the UK, Trump reiterated his recent tariff threat on Mexico, telling reporters that his new policy would “take effect next week”. The US President also stated Tuesday that the U.S. was “committed to a phenomenal trade deal” with the U.K. Italian sovereign bond prices and stocks are falling further after the European Commission concluded that Italy is in breach of EU fiscal rules because of its growing debt.
Against this backdrop, the UK’s FTSE 100 adds 0.48 per cent to 7248, Italy’s FTSE MIB declines by 0.75 per cent to 20,076, France’s CAC 40 is up 0.70 percent to 5,304, while German DAX 30 adds 0.57 per cent to 12,039. US stock index futures are also higher as risk sentiment continues to improve amid signs of monetary policy easing.
EURUSD extends gains for a fifth day in a row. The pair challenged the 100-DMA for the first time since March 22, which is a strong bullish signal. The euro registered a high at 1.1288 so far, with the 1.13 barrier is within striking distance now, which could stir some bulls. The key driver behind euro strength is the selling pressure around the greenback which came from the Fed’s dovish tone. Should other policymakers confirm the central bank’s intention to cut rates, the dollar could ease further in the short term. On the data front, the euro zone service PMI printed at 52.9 for May, reaching a three-month high, which added to positive sentiment around the common currency.
Crude oil prices resumed recovery attempts on Wednesday but Brent fails to settle above the $62 figure so far as the market still lacks momentum amid lingering demand concerns. U.S. crude inventories rose unexpectedly last week, while gasoline and distillate stockpiles built more than expected, American Petroleum Institute data showed. Crude stocks rose by 3.5 million barrels in the week to May 31 to 478 million barrels, compared with analysts’ expectations for a decrease of 849,000 barrels. The report capped the upside momentum in prices as well. On the other hand, hopes the Fed may trim interest rates soon are supporting the barrel as such expectations press the dollar lower.
Meanwhile, gold prices extended the rally to the key $1.1340 figure Wednesday and is having the fifth day of gains in a row. The bullion is rising despite the risk sentiment improves substantially as the greenback continues to lose ground amid expectation for a rate cut by the Federal Reserve. Technically, the precious metal needs a daily close above the $1,335 to confirm the latest bullish breakthrough. The next upside target comes around $1.342.
Nathan Lambert, Head of Global FX Analytical Department