The renewed trade optimism sent the European stocks to fresh four-year highs on Thursday, after the Chinese commerce ministry said that China and the United States have agreed to cancel in phases the imposed tariffs. Earlier, investors expressed worries over another weak economic report from Germany showing industrial production contracted more than expected in September. Mostly positive earnings reports from a number of companies also helped to alleviate the early selling pressure in the regional markets. Italy’s UniCredit stocks rallied nearly 5% after the bank giant reported a 26% increase in its net profit in the third quarter. Better-than-expected results from ArcelorMittal lifted the steelmaker’s shares 7.2% in a knee-jerk reaction with a later retreat to 5%.
Against this backdrop, UK’s FTSE 100 gains 0.16 per cent to 7408, Italy’s FTSE MIB rallies 0.74 per cent to 23,544, France’s CAC 40 rises by 0.21 per cent to 5,878, and German DAX 30 rises by 0.73 per cent to 13,276. Meanwhile, US stocks index futures turned sharply higher after comments by Chinese commerce ministry. After the market close, Booking Holdings, Disney and Activision Holdings will reveal their quarterly results.
Positive news from the trade front fueled demand for European currencies, while the safe haven Japanese yen reversed earlier gains and turned negative on the day against the dollar. The USDJPY pair is now back above the 200-DMA and clings to highs above the 109.00 handle. However, it has yet to confirm a breakout on a daily basis as risk sentiment could ebb again. On the downside, the 108.50 area remains the key immediate support.
EURUSD was rejected from the 1.1050 region and pushed to daily highs just below the 1.11 handle, with weak German data capped the short-term upside potential. In a wider picture, the euro continues to grind sideways after failed attempts to challenge the 1.12 figure last week. By the way, volatility in the pair has declined despite another boost for risk sentiment. In part, this is due to a relatively stable dollar index. Also, the euro bullish attempts are capped by the fact that the European Commission lowered the GDP growth expectation for the Eurozone to 1.1% for 2019 from 1.2% reported in the previous estimate.
In the oil market, Brent resumed the upside move after an earlier dip towards the 100-DMA. The futures bounced back above the $62 handle but the upside lacks follow through as traders continue to digest a bearish report from the EIA whish showed the US crude oil inventories rose nearly 8 million barrels last week. Also, despite the latest signs of progress in the US-China trade talks, market participants keep a cautious tone due to a lack of details. In the short term, Brent needs to confirm a break above $62 in order to extend intraday gains. Otherwise, the prices could challenge the above mentioned moving average in the $61.50 zone should risk appetite start to wane once again.
Nathan Lambert, Head of Global FX Analytical Department