After decent losses in Asia, European markets are extending the slide on Wednesday as China-US trade concerns continue to unnerve global investors. The unexpected escalation of Trump’s rhetoric on trade in the past few days have caught global markets off-guard and triggered a widespread risk aversion. This factor remains the main driver for stocks and other assets ahead of another round of negotiations due on Thursday and Friday. As for the corporate sector, Commerzbank results were in line with estimates, while Siemens posted a beat. Toyota and Honda expect profit and sales short of analysts’ estimates.
Against this backdrop, the UK FTSE 100 loses 0.36 per cent to 7,234, France’s CAC 40 is down 0.07 percent to 5,391, while German DAX 30 adds 0.11 per cent to 12,106. US stock index futures also point to a lower open. EURUSD makes tentative bullish attempts after a slide yesterday. The pair still struggles to regain a sustainable positive momentum and stays marginally above the 1.12 level amid tightening global tensions. China reported positive figures on trade, and the common currency received some support from optimism around the second-largest economy.
Meanwhile, German industry beat production forecasts in March, as output in the sector rose for the second consecutive month. Total industrial output increased 0.5% in March from the month before versus the expected decline by 0.5%. Compared with March 2018, total industrial output fell 0.9%. The economics ministry said that despite the unexpected gain in monthly number, the outlook for Germany's industry remains "muted" in light of falling orders and weak business sentiment. In the short-term, EURUSD will likely continue to oscillate around the 1.12 level. A break above 1.1220 is needed for a more sustainable bullish bias.
USDJPY derailed the 110.00 figure for the first time since March 26 as the safe-haven yen demand continues to persist. The Japanese currency continues to benefit from the global flight to safety amid renewed concerns over a full-blown US-China trade war, which is one of the key factors weighing on the pair for the fourth consecutive session. The fact that China's Vice Premier is set to travel to Washington and the next round of trade negotiations will continue this week, did little to stall the dollar’s ongoing decline to the lowest level since late-March. A daily close below the 110.00 figure will confirm a worsening short-term technical outlook for the pair.
In oil markets, Brent resumed the slide after some recovery attempts following yesterday’s plunge below the $70 figure. The prices remain under the psychological level on Wednesday but the selling pressure seems to be limited ahead of the official inventories data from the EIA. The report is expected to show that US stockpiles added 1.1 million barrels last week. Considering the API data showed a larger 2.81-million-barrel rise yesterday, the release is potentially opening the door for a downbeat surprise that might pressure Brent further in the short term.
Nathan Lambert, Head of Global FX Analytical Department