European stocks are mostly rising on Thursday, with the exception of UK shares suffering from a rally in the sterling. But the upside impetus in regional equities still looks limited due to the lingering uncertainty around the US-China phase one deal aid conflicting signals from this front. The upcoming OPEC meeting adds to a cautious tone in the markets. According to the latest reports, the US and China are moving closer on their preliminary deal but earlier, Trump had warned that he could delay a trade deal with China until after the 2020 presidential election.
On the data front, German industry orders dropped 0.4% in October. Eurozone October retail sales were down 0.6% versus -0.5% m/m expected while Eurozone Q3 final GDP came in at +0.2% versus +0.2% q/q in the second reading. As such, the GDP report confirmed that the region’s economy sees a sluggish growth during the last quarter.
Against this backdrop, UK’s FTSE 100 sheds 0.02 per cent to 7186, Italy’s FTSE MIB rises by 0.63 per cent to 23,180, France’s CAC 40 gains 0.68 per cent to 5,839, and German DAX 30 rises by 0.18 per cent to 13,163. U.S. stock index futures are trading decently higher on Thursday, with Dow futures adding more than 100 points after yesterday’s gains.
In currencies, GBPUSD jumped to 7-month highs around 1.3150, extending gains for a fifth day in a row, as investors cheer the fact that Johnson remains ahead in the polls. Traders are now sure that Prime Minister will win next week’s general election and will be able to form a majority government. This in turn suggests that the country could see a quick exit from the European Union. Due to easing political pressure, the pound managed to shrug off weak economic data out of the UK. Earlier this week, the releases showed that manufacturing, construction and services PMIs stayed below the 50-level, which points to contraction. Meanwhile, EURUSD remains elevated above the 100-DMA, having settled marginally below the 1.11 handle. Of note, the euro ignored unimpressive European economic data as the greenback remains on the defensive amid the prevailing risk-on sentiment. On the other hand, the common currency failed to preserve yesterday’s gains as the pair was quickly rejected from highs around 1.1160. In the short-term, EURUSD needs to confirm a break above the mentioned moving average, otherwise the prices could correct lower should risk sentiment turn sour any time soon.
In commodities, Brent crude got back above the $63 handle after earlier corrective attempts. Oil traders are eagerly waiting for the OPEC+ meeting due on Friday, after OPEC summit later today. It is widely expected that the group will extend the deal while the issue of deeper production cuts remains uncertain. Depending on the rhetoric by the cartel members, Brent may exceed the $65 handle or dip below $60 by the end of the week, with volatility remaining elevated amid the crucial event.
Nathan Lambert, Head of Global FX Analytical Department