European stock markets opened higher on Wednesday as investors digested fresh corporate earnings reports and economic data. July’s final Eurozone PMI came in at a modest 56.5, pointing to a weaker rebound than expected. Eurozone June retail sales rose by 5.7% versus +6.1% m/m expected while the previous result was revised from +17.8% to 20.3%. the report confirmed that retail sales activity continues to recover after bottoming out in April amid the coronavirus pandemic.
As for corporate earnings, German insurer Allianz reported a nearly 30% decline in net profit for the second quarter to 1.53 billion euros. At the same time, the company said the second half of the year will be stronger than the first provided the coronavirus situation remains the same. BMW reported a 666- million-euro net loss before interest and taxes in the second quarter, down from a 2.2 billion euro operating profit for the same period in 2019. The German automaker’s stocks fell 3% after the release.
Meanwhile, senior U.S. and Chinese officials will hold a videoconference on August 15 and will review the implementation of their Phase 1. Investors could get nervous ahead of this event as the relations between the two world’s largest economies still leave much to be desired. During the negotiations, China will likely bring up concerns over the recent U.S. crackdown against Chinese tech companies.
Against this backdrop, the UK’s FTSE 100 adds 1.09 percent to 6,101. Italy’s FTSE MIB edges higher by 0.72 percent to 19,756, France’s CAC 40 gains 0.92 percent to 4,934, while German DAX 30 adds 0.96 percent to 12,722. U.S. stock index futures maintain their gains for this week and trade higher on Wednesday amid the remaining hopes for progress on the second stimulus package that could provide more fuel to markets and send them to another record high.
In currencies, the dollar turned negative following a short-lived recovery witnessed earlier this week. EURUSD extends the recovery from the 1.17 area and has already turned the 1.18 handle into support again. However, the bullish potential in the common currency is capped by weaker-than-expected economic data out of the Eurozone suggesting the economy continues to struggle amid the coronavirus pandemic. Nevertheless, a daily close above 1.18 will mark improvement in the short-term technical picture for the euro.
Oil prices climbed to $45.35 for the first time since March as positive risk sentiment prevails and the dollar retreats nearly across the board. Brent crude is also supported by the API report that showed the US crude oil inventories contracted by 8.6 million barrels last week. Should the official report from the EIA confirm bullish numbers, oil futures may confirm the latest breakout on a daily closing basis.
Nathan Lambert, Head of Global FX Analytical Department