European stock markets opened lower on Thursday as investors continue to keep a cautious tone amid the ongoing talks on the fiscal stimulus package in the United States while the incoming economic reports paint a mixed fundamental picture.
The Bank of England kept benchmark interest rates at an all-time low of 0.1% and left the size of its bond-buying program unchanged at £745 billion, as expected. The central bank said the U.K.’s gross domestic product was expected to have fallen 20% in the second quarter when compared to the final three months of 2019. The regulator also warned that the economy was unlikely to exceed its pre-pandemic level until the end of 2021. Meanwhile, Bank of England’s Bailey noted that negative interest rates are in the toolbox, but that is not the current plan.
Elsewhere, the German health minister warned that the general lockdown could be imposed again if virus numbers rise. Of note, Germany reported 1,045 new virus cases today - the first time that the daily count exceeded 1,000 since early May. On the data front, UK July construction PMI came in at 58.1 versus 57.0 expected. Germany July construction PMI arrived at 47.1 versus 41.3 prior while Germany June factory orders jumped 27.9% versus +10.1% m/m expected.
Against this backdrop, the UK’s FTSE 100 sheds 1.91 percent to 5,988. Italy’s FTSE MIB edges lower by 1.49 percent to 19,449, France’s CAC 40 loses 0.77 percent to 4,894, while German DAX 30 declines by 0.40 percent to 12,607. U.S. stock index futures are trading higher ahead of the opening bell but investors keep cautious ahead of the key employment report due on Friday.
In currencies, the dollar remains under pressure as traders continue to digest weak ADP employment data released on Wednesday. EURUSD climbed to fresh two-year highs around 1.1915 earlier in the day but failed to confirm a break above 1.19 once again and retreated to the 1.1840 area despite a broad-based weakness in dollar demand. In part, the common currency came under local selling pressure amid mixed economic reports out of Europe. Despite the correction, the bullish trend in the euro remains intact.
As for the oil market, Brent crude has settled around $45 after yesterday’s brief rally above the $46 handle. The technical picture has improved somehow following the recent breakout but it looks like the futures won’t be able to preserve gains in the short term due to a lack of positive drivers. On the positive side, dollar weakness helps Brent to stay afloat while the fundamental picture in the oil markets still leaves much to be desired as the outlook for demand recovery looks bleak while OPEC+ countries started to increase production this month.
Nathan Lambert, Head of Global FX Analytical Department