European shares are trading in a recovery mode on Wednesday after a three-day sell-off. Fears over the US-China trade war have cooled somewhat as White House softened its rhetoric on Beijing while the People’s Bank of China set the official midpoint reference for the yuan slightly weaker than expected. Senior adviser Larry Kudlow highlighted that the Trump administration was still planning to host a Chinese delegation for talks in September, which brought some relief to investors.
Meanwhile, the banking sector is in market focus in Europe as the industry index dipped to a one-year low after a series of financial results. In particular, Commerzbank posted a net second-quarter profit of 271 million euros, nearly unchanged from the same period a year ago. The bank’s shares declined 5% following the report. Stocks of ABN Amro lost nearly 4.5% after the lender exceeded estimates by just 1% rise in second-quarter net profit.
On the data front, today’s release showed that German industrial output fell at a far steeper pace than expected in June. According to the official data, industrial output fell by 1.5% on the month, exceeding the forecast -0.4%. The report added to concerns over the region’s largest economy.
Against this backdrop, UK’s FTSE 100 adds 0.73 per cent to 7223, Italy’s FTSE MIB recovers by 0.59 per cent to 20,754, France’s CAC 40 rises by 1.46 per cent to 5,310, while German DAX 30 adds 1.40 per cent to 11,730. US stock index futures are slightly higher after an earlier dip amid simmering trade tensions between the world’s two largest economies.
In the currency market, the dollar shows mixed dynamics. After s short-lived bounce, USDJPY resumed the bearish move and has settled around 106.00. EURUSD is under a limited pressure as the euro failed to stay above the 1.12 handle, with weak German data added to the negative pressure. Rallies in the pair remain limited despite a generally weaker dollar as traders are preparing for fresh stimulus measures from ECB. As long as the common currency remains below the 100-DMA around 1.1230, the downside risks will persist.
Meanwhile, oil prices are trading at fresh January lows around $58.50 as trade-related concerns persist. The technical picture has deteriorated after a break below the $60 handle, which now acts as the immediate meaningful resistance. Should risk aversion resume any time soon, Brent will come under a more severe pressure and could challenge the $58 handle with the next target at $57.80. The next industry event is the official EIA report due later today. The API release showed that US crude oil stockpiles declined 4.3 million barrels last week.
Nathan Lambert, Head of Global FX Analytical Department