After a positive start to the session, European stock markets quickly erased early gains and turned negative on the day as fears of another sell-off in the U.S. tech sector continued to weigh on investor sentiment. Furthermore, the official report showed on Tuesday that second-quarter Eurozone GDP contracted by 14.7% year-on-year and 11% from the previous quarter. As it was the steepest decline on record, the fact that the result came in a bit better than the initial estimate, the release did little to lift market sentiment in the region.
Elsewhere, US-China tensions remain in market focus after Trump again raised the idea of an economic decoupling from Beijing. Meanwhile, the UK signaled its preparations to leave the European Union without a deal if no free trade accord can be reached this week. Besides, the U.K. reported almost 3,000 new daily cases over the last two days, adding to investor concerns.
Against this backdrop, the UK FTSE 100 index edges lower by 0.38% to 5,914, Italy’s FTSE MIB declines by 1.80 percent to 19,383, France’s CAC 40 sheds 1.55 percent to 4,975, while German DAX 30 edges lower by 1.11 percent to 12,954. U.S. stock index futures point to a negative open after a long weekend.
In currencies, the GBPUSD is the weakest among majors as traders accelerated the sell-off amid concerns over Brexit after Jonathan Jones, the UK government legal department head has quit over suggestions that UK PM Johnson plans to row back parts of last year's Brexit deal. Besides, Germany’s Finance Minister Olaf Scholz said that the latest signals from London do not raise hopes for a Brexit agreement. As such, cable dipped to nearly one-month lows around 1.3020, now threatening the 1.30 psychological handle. it looks like the pair will suffer further losses this week as the situation surrounding the Brexit talks this week remains uncertain.
Meanwhile, oil prices continued to grind lower on Tuesday and plunged to late-June lows in the $40.60 area in recent trading. The bearish momentum in the oil market has accelerated after Saudi Arabia announced cutting prices for its Asian customers, with further recovery in the greenback adding to the downside pressure. Today, Fitch Ratings reduced its long-term price forecasts for both Brent and West Texas Intermediate oil. Among other reasons behind the decision, the agency cited the extended period of high oil inventory caused by the coronavirus pandemic and fragile supply-demand dynamics. If the pressure persists in the short term, Brent could derail the $40 psychological level for the first time since June 25.
Nathan Lambert, Head of Global FX Analytical Department