European stocks advanced on Monday despite weak economic data out of Germany, with industrial output climbing just 1.2% in July, below the 4.7% increase expected. Earlier in the day, data from China painted a mixed economic picture, as exports climbed 9.5% from a year earlier in August, the strongest gain since March 2019, while imports contracted by 2.1%, reflecting weak domestic demand.
Despite fairly strong gains in stocks, trading ranges will likely remain limited as tensions between the US and China are rising again. Also, investors are starting to gradually shift focus to the upcoming ECB meeting due on Thursday. The central bank is widely expected to keep its policy steady. Still, there will be a fresh set of economic projections that could affect regional markets.
Against this backdrop, the UK FTSE 100 index edges higher by 1.69% to 5,897, Italy’s FTSE MIB rises by 1.27 percent to 19,637, France’s CAC 40 rallies by 1.22 percent to 5,025, while German DAX 30 rises by 1.34 percent to 13,014. The U.S. stock market closed for the Labor Day holiday today.
In currencies, the European currencies came under renewed selling pressure in recent trading, with GBPUSD leading the losses amid Brexit-related developments. According to the latest reports, British Prime Minister Boris Johnson reiterated that if no Brexit deal is reached by October 15 with the EU, both sides should accept that and move. European Commission President Ursula von der Leyen expressed hope that the British government to implement the Withdrawal Agreement. Meanwhile, a German government spokesman highlighted that the UK must make concessions in Brexit talks. Amid this uncertainty, the pound has accelerated its retreat from recent highs and dipped to nearly two-week lows around 1.3145 in recent trading. If the pressure persists, the pair could turn the 1.31 figure into resistance and extend the dip to the 1.3050 support zone.
Meanwhile, oil prices struggle around $42 after Saudi Arabia announced the decision to cut prices for its Asian buyers, citing sluggish demand. A strong dollar continues to cap recovery attempts in Brent as well while the persisting economic and geopolitical uncertainty keeps the market under pressure. It looks like the futures will remain on the defensive in the short term and could challenge fresh one-month lows if Brent fails to regain the $42 handle any time soon.
Nathan Lambert, Head of Global FX Analytical Department