European stocks edged lower on Tuesday in a sign that the recent rally cools despite the ongoing reflation trade. Still, the resurgent selling pressure looks modest as investors continue to express optimism over the prospect of a substantial US fiscal stimulus package and slowing COVID-19 infection rates globally.
Elsewhere, commenting on the US carrier groups conducting exercises in the South China Sea, China’s Foreign Ministry spokesman Wang Wenbin said that they will continue to take necessary measures to ensure sovereignty, security and development interests. On the data front, the German trade surplus improved to €16.1 billion during December.
Against this backdrop, the FTSE 100 in London sheds 0.02% to 6,521, Italy’s FTSE MIB declines by 0.33 percent to 23,349, France’s CAC 40 is up by 0.15% to 5,694, while the German DAX 30 sheds 0.19% to 14,064. US stock index futures were flat during the European hours following another record-breaking session seen overnight.
In currencies, the dollar remains on the defensive against its major counterparts on Tuesday, with EURUSD has reached the 20-DMA that arrives around the 1.2100 handle. However, the common currency could lack the recovery momentum to make a decisive break above this barrier in the short term, especially as risk sentiment has been deteriorating somehow during early hours in Europe. As such, downside risks continue to persist as long as the pair stays below the mentioned moving average. Later today, ECB’s P. Lane will participate in a virtual panel discussion at the Irish Fiscal Advisory Council conference.
Meanwhile, oil prices keep rising for the eighths session in a row. Brent crude has exceeded the $60 handle and extended gains to fresh January 2020 highs around $61.25. Oil market is supported by a weaker dollar, a slower rise in coronavirus cases, stimulus and recovery hopes. Later in the day, the API reveals its weekly inventory report that could affect short-term dynamics in the market. In a sign that the bullish momentum could be waning, the prices have retreated marginally below the $61 figure in recent trading as risk sentiment has deteriorated somehow in Europe following mixed trading in Asia.
Nathan Lambert, Head of Global FX Analytical Department