After a mixed start to the session, European stocks shrugged off weakness in the US markets led by tech shares and bounced on Wednesday. Earlier in the day, fresh economic data out of China showed that both the producer price index and the consumer price index came in line with expectations at -2.0% and +2.4%, respectively. Investor reaction to the release was neutral while due to the lack of other reports market attention is focused on the general risk sentiment in the context of global developments including US-China relations, central banks’ policy, oil market dynamics, Brexit developments, etc.
As for Brexit, citing a copy of the UK internal market bill, Reuters reports that the UK legislation acknowledges that some powers conferred may be inconsistent with international law, and the ministers can take into account the need for Northern Ireland goods to enjoy unfettered access to the rest of the UK. As a reminder, earlier, the U.K. told the European Union that it is readying preparations to exit from the bloc without any accord.
Against this backdrop, the UK FTSE 100 index edges higher by 0.85% to 5,980, Italy’s FTSE MIB declines by 0.70 percent to 19,515, France’s CAC 40 rises by 0.38 percent to 4,992, while German DAX 30 adds 0.76 percent to 13,066. U.S. stock index futures are trading higher, bouncing after a three-say sell-off driven by a rout in tech stocks that sent the Nasdaq index into correction territory on Tuesday. However, markets remain vulnerable, and the pressure could reemerge at any point should investors proceed to profit-taking again.
In currencies, the dollar remains on the offensive, capitalizing on the issues surrounding its counterparts. As such, EURUSD has settled below 1.18, threatening the 1.1750 support area ahead of the ECB monetary policy meeting scheduled for Thursday. The resurgent dollar demand coupled with concerns over the possible dovish tone by the central bank keep the common currency under pressure. It looks like the euro may suffer deeper losses in the days to come if risky assets stay on the defensive, and the ECB disappoints by a gloomy economic estimate amid the coronavirus pandemic.
In commodities, oil prices found a local bottom around $39.30 on Tuesday and bounced modestly amid the oversold conditions. As a result, Brent regained the $40 handle in recent trading but is yet to confirm the bounce on a daily closing basis. The selling pressure has eased as investor sentiment has improved somehow. However, downside risks in the oil market continue to persist, and Brent crude could resume the decline after a short-lived pause. If so, the $35 figure will come back into traders’ focus for the first time since late-May as concerns over the uneven and slow recovery in energy demand continue to weigh on commodities.
Nathan Lambert, Head of Global FX Analytical Department