European stock markets extend losses on Tuesday amid the growing uncertainty surrounding the US-China relations. Investors have been expressing doubts over whether the two countries will manage to strike a phase one deal before new tariff deadline on December 15. Tech shares and autos are leading the losses, shedding over 1.5%. in the latest trade developments, a Chinese Commerce Ministry official said that Beijing hoped for a deal with Washington as soon as possible before the deadline. In turn, U.S. Agriculture Secretary Sonny Perdue noted that Trump wants to see movement from China to avoid implementing the tariffs. In other words, there is still no concrete progress towards a partial deal, which unnerves investors.
On the data front, U.K. GDP grew at its slowest annual pace in nearly seven years rising by just 0.7% compared with October 2018. By the way, this is the first three-month period without any growth in over ten years. Meanwhile, the December ZEW survey surprised to the upside. The German economic sentiment index rose sharply to 10.7 from -2.1 in November to beat the market expectation of 1. The same index for the eurozone came in at 11.2 versus -17.7 expected.
Against this backdrop, UK’s FTSE 100 sheds 1.30 per cent to 7140, Italy’s FTSE MIB declines by 0.52 per cent to 22,837, France’s CAC 40 loses 0.77 per cent to 5,792, and German DAX 30 sheds 1.34 per cent to 12,930. U.S. stock index futures point to a sharply lower open, down by more than 100 points, with investors gradually shifting focus to the Federal reserve meeting that concludes on Wednesday.
In currencies, the euro remains bid on Tuesday and turned sharply lower amid the latest economic data out of Eurozone, where economic sentiment has improved substantially last month. EURUSD got back to the 1.1080 area which serves as a local barrier on the way to the 1.11 handle. Still, the current rally looks unsustainable, as risk aversion could limit the upside and revive demand for the safe-haven dollar. In the days to come, the pair may see heightened volatility amid the Fed and ECB meetings. Should the European central bank express a dovish tone towards its monetary policy and the economic outlook, the pair could finish the week on a downbeat tone.
In commodities, Brent crude turned slightly lower in mid-day and the prices got back below the $64 figure. It looks like traders have already forgotten about last week’s OPEC+ meeting and shifted focus back to the trade-related developments. It is possible that the futures will extend the retreat in the short term amid a broad-based risk aversion in the global financial markets. Technically, Brent needs to stay above the $63.30 region in order to avoid a more aggressive selling pressure at this stage.
Nathan Lambert, Head of Global FX Analytical Department