European markets were trading flat at the beginning of the session and turned marginally lower later as investor sentiment has deteriorated somewhat after weak economic data out of China reminded the markets about the ongoing trade war that continues to hurt the global economy. Chinese exports declined 1.1% in November, posting the negative result for the fourth consecutive month, while analysts expected a recovery by 1%.
Also, market participants are cautious ahead of the vote in the UK due on Thursday and also awaiting some progress towards a partial deal between the US and China ahead of a key deadline for additional tariffs on Chinese exports to the U.S. on December 15. Meanwhile, German exports surprised to the upside, having risen by 1.2% in October despite global trade tensions.
Against this backdrop, UK’s FTSE 100 sheds 0.18 per cent to 7226, Italy’s FTSE MIB declines by 0.65 per cent to 23,027, France’s CAC 40 loses 0.35 per cent to 5,851, and German DAX 30 sheds 0.11 per cent to 13,151. U.S. stock index futures point to a lower open after a rally on Friday.
In currencies, the greenback is lower against the majors. EURUSD is back above the 100-DMA and registered daily highs around 1.1075. Despite the bullish bias, the euro has yet to recoup Friday’s losses, posted after an unexpectedly strong US jobs data. The downside risks remain in the pair as long as prices remain at least below the 1.11 handle. Positive German data gave some support to the common currency but the impetus is obviously not enough to reverse the recent losses. Moreover, risk sentiment has deteriorated and caps euro demand as well.
Later this week, traders will focus on the Federal reserve policy meeting which concludes on Wednesday. Should the central bank express a more upbeat tone on the economy, siting the latest strong data, the dollar appeal could pick up across the board. In this scenario, EURUSD could lose ground again and get back below the 1.10 handle.
In commodities, Brent crude retreats from the late-September highs marginally below the $65 level. The futures are now back under the $64 handle, with the 200-DMA turning into resistance once again. As traders digested the OPEC+ decision to take deeper cuts in the first quarter of 2020, market focus shifted back towards the US-China trade dialogue as the December 15 deadline looms. Besides, traders express concern over the discipline in the OPEC+ group, as many countries fail to comply with their quarters. Should risk sentiment deteriorate further, Brent may challenge the $63 level after a break below the $63.60 intermediate support in the short term.
Nathan Lambert, Head of Global FX Analytical Department