European stock markets rose across the board on Tuesday as the risk-friendly environment persists since the start of the week. In another sign of cooling trade war fears, the President Xi Jinping promised to cut import tariffs and to improve access for foreign companies to financial and manufacturing sectors. Against this backdrop, global investors sighed with relief, sending the European stocks to multiweek highs. German shares were the outperformers gaining additional support from Bayer’s jump by over 5% on good news about a deal with Monsanto Co. The bullish dynamics in global financial markets set to continue, should Trump doesn’t spoil the party with unexpected inflammatory statements in the short term. For the time being, Britain’s FTSE 100 adds 0.65 per cent to 7,241, France’s CAC 40 is up 0.46 per cent to 5,287 and German’s DAX 30 adds up 0.82 per cent to 12,362. Wall Street stock index futures rise more than a 1 per cent.
The greenback is on the defensive against the European currencies while appreciating against the Japanese yen. The euro received a boost from ECB member Novotny who said the regulator will end its bond-buying program by year-end. At the same time, he highlighted that it’s still premature to infer the timing of the start of the tightening cycle. EURUSD jumped to fresh April highs of 1.2377 on the comments but failed to preserve momentum and retreated partially. The US PPI data came out better than expected and therefore signaled some inflationary pressures, which has limited the euro’s bullish potential. Ahead of tomorrow’s US CPI numbers and FOMC meeting minutes, the pair looks buoyant and may make a clear break above 1.24, should the dollar get disappointed by the data and central bank’s tone.
GBPUSD also jumped to this month’s highs in Europe, boosted by risk-on environment and hawkish comments by BOE's McCafferty who urged not to delay hiking interest rates. The pair rose to highs just below the 1.42 mark where it faced offers and retreated. Still, the pound remains in the positive territory and may gain further traction in the medium term if the central bank continues to prepare markets for a May hike which is already mostly priced in. On the other hand, the dollar’s bearishness is limited amid cooling fears of a trade war. The immediate support for the pair is now at 1.4130, while the nearest bullish target is 1.42.
The USDJPY pair appreciates mildly, with the fight for the 107.00 threshold seems never ending. Despite the risk appetite is back, the upside impetus for the pair remains subdued as the greenback still feels somehow uncomfortable amid the remaining concerns over trade tensions as well as ahead of the upcoming US event - CPI release and FOMC meeting minutes. The market participants could view the Powell’s rhetoric as not “aggressive” enough, which will fuel USD sell-off. In this scenario, the pair will fail to hold above 107.00 and may challenge the 106.60 support area.
Crude oil prices continue the ascent, with Brent adds 1.75 per cent on the day. The price tried to probe the $70 mark recently but faced offers and is now consolidating just below the psychological mark. The key driver behind the bullish environment in commodities this week is the abating market concerns over trade issues between China and US. So, as long as the risk-on mood persists, Brent will likely stay afloat. The immediate event risk for the market is the API release today evening and the official oil inventories report due on Wednesday. The stockpiles may rise again, which will limit the bulls’ enthusiasm.
Gold prices are rising for a third day in a row, with $1,340 mark, which is the immediate resistance, is back on the radar. The dollar is on the defensive, which traditionally fuels demand for the yellow metal. On the other hand, its upside potential is limited by risk-friendly global investors. Nevertheless, spot gold has a chance to make a more significant bullish breakthrough this week, should the greenback fail to gain any meaningful support from tomorrow’s FOMC meeting minutes.
Nathan Lambert, Head of Global FX Analytical Departament