European markets extend losses on Thursday amid weaker-than-expected corporate earnings, added to the economic woes in the region. Britain’s Tui AG shares plunged by over 17% after the company cut its profit outlook. Societe Generale slashed its profitability targets, while Publicis Groupe reported a decline in Q3 revenue versus expectations of a rise by 2.5%. On the economic front, both the European Commission and the ECB expressed concerns over growth slowdown, both in the region and globally. Meanwhile, Brexit- and US-China-related uncertainty adds to the market worries. Against this backdrop, Britain’s FTSE 100 sheds 0.24 per cent to 7,155, France’s CAC 40 is down 0.89% to 5,033, while German DAX 30 declines by 1.59 per cent to 11,144. US stock index futures are trading lower in early pre-market trade but could yet turn positive during the session as risk appetite seems to be surging ahead of US trading.
European currencies extended the decline today but the pressure has eased recently, with both the euro and the pound are trying to trim intraday losses, while the USDJPY pair slipped to daily lows as risk sentiment improves after the Bank of England’s Carney press-conference. The central bank governor pointeв to upside for the UK economy if there is clarity in Brexit deal sooner. In general, he confirmed that the Bank of England will wait and see how Brexit progresses before taking decision on monetary policy. According to Carney, no-deal Brexit is not the most likely scenario. Meanwhile, the pound liked the phrase that markets should not start preparing for a scenario of np future rate hikes. After the comments, GBPUSD jumped from January 21 lows registered earlier in the day at 1.2853 and regained the 1.29 level. Anyway, it’s too early to be optimistic about rate hikes as Brexit issues remain unresolved. Keeping this in mind, traders will hardly dare to push the cable substantially higher from the current levels.
The picture around EURUSD looks gloomier. Germany December industrial production declined by 0.4% versus +0.8% expected. The previous result was revised from -1.9% to -1.3%. By the way, this is the fourth consecutive month of decline for German industrial production. Another miss on data is another confirmation of German economy weakness in Q4. The downside pressure on the common currency intensified after the European Commission released its latest growth forecasts. The EC cut euro zone 2019 GDP growth forecast to 1.3% from 1.9% previously, with the main drag are Germany and France. Then, the dovish message from the ECB bulletin added to the negative sentiment around the euro. In particular, the central bank said that economic indicators signal a moderation in global growth momentum, downside risks have been increasing, while the headline inflation is likely to decline further over coming months on lower oil prices. EURUSD plunged to 1.1324 and despite the pressure has eased somehow since then, the price stays close to the lows and downside risks remain amid a combination of a stronger dollar and worrying economic estimates in the region.
After another failed attempts to challenge the $63 figure, Brent crude has settled around the $62 figure and turned negative on the day. The bulls don’t have enough impetus for driving prices higher, so any positive attempts attract profit-taking amid the lingering uncertainties everywhere, from US-China talks to Venezuelan sanctions and OPEC efforts. Coupled with broad-based dollar strength and unstable risk sentiment in the global financial markets, these conditions will likely further cap the upside potential in the oil market. In the short term, it implies further consolidation within the established channel. A sustained break below $61 or above $63 is unlikely until the end of the trading week.
Nathan Lambert, Head of Global FX Analytical Department