European stock markets extend gains on Thursday, as investor sentiment remains positive due to signs of warming U.S.-China trade relations while fears over the coronavirus outbreak start to fade. China announced on today it will cut tariffs on $75 billion of U.S. imports by half, starting next week. On the data front, German factory orders slumped 2.1% in December and declined 8.7% from a year ago, but investors shrugged off the report amid trade-related optimism.
As for earnings, Societe Generale missed fourth-quarter earnings projections but revealed plans for possible stock buybacks. The French lender’s shares rose 1.4% following the report. UniCredit stocks rallied nearly 6% as the Italian bank’s €835 million loss wasn’t as bad as feared. Besides, the bank said it would consider increasing its capital distribution plan.
Against this backdrop, UK’s FTSE 100 adds 0.37 per cent to 7,509, Italy’s FTSE MIB gains 0.76 per cent to 24,421, France’s CAC 40 is up 0.64 per cent to 6,023, while German DAX 30 gains 0.68 per cent to 13,570. US stock index futures poiте to the fourth straight day of gains, with investors continuing to shrug off coronavirus fears, focusing instead on positive economic data and corporate earnings.
In currencies, the dollar is trading mixed but resilient in general, following the recent rally on upbeat economic data. EURUSD dipped back to the lows around 1.10 and struggles to regain a firm upside momentum despite risk-on sentiment. In part, this is due to a sharp decline in German industrial orders as the dismal report revived concerns over the slowing growth in the Europe’s largest economy. Also, the greenback remains strong ahead of Friday’s NFP jobs report. Meanwhile, ECB's de Guindos said that side effects of policy are being monitored carefully while euro area banks' market valuations remain depressed. ECB governor Lagarde noted that low rates and low inflation has significantly reduced scope to ease policy. Technically, the longer the euro remains around 1.10, the higher the risk of a breakdown in the near term.
In commodities, Brent crude has been oscillating around the $55.50 following an earlier rejection from the local resistance around $56.50. The futures declined briefly on the reports that OPEC+ may agree on need for deeper output cuts of at least 500,000 barrels per day this week. Now, the committee awaits Russia's final position. As such, oil traders are now waiting for a verdict that will define further direction in Brent. From the technical point of view, the immediate risk still skewed to the downside, and to ease the current selling pressure, Brent needs to firmly regain the $57 figure. On the downside, the futures may lose the $54 figure again should the sentiment deteriorate again.
Nathan Lambert, Head of Global FX Analytical Department