European stocks are trading mostly lower on Thursday amid a choppy session in anticipation of high-level trade talks between the U.S. and China. The White House denied earlier reports that Chinese Vice Premier Liu He intends to leave after the first day of negotiations, which have somehow calmed down investors.
In other news, a meeting between U.K. and European Union Brexit negotiators has been delayed until Friday. Meanwhile, German Finance Minister Olaf Scholz noted that Germany's economic growth was slowing partly because of the Brexit uncertainty.
On the data front, U.K. GDP rose 0.3% in the three months to August as July’s growth was revised up from 0.3% to 0.4%. Details showed that most of the downside came from industrial production, while construction recovered by 0.2% and services were unchanged. Anuway, the report showed that the odds of a technical recession in the UK for the Q2-Q3 period are quite low.
Against this backdrop, UK’s FTSE 100 sheds 0.13 per cent to 7157, Italy’s FTSE MIB loses 0.07 per cent to 21,518, France’s CAC 40 edges higher by 0.14 per cent to 5,507, and German DAX 30 sheds 0.10% to 12,081. Meanwhile, US stocks index futures are in a retreated mode as investors refrain from making deals amid the start of closely watched high-level discussions in Washington.
In currencies, EURUSD has finally broken above the 1.10 handle to register three-week high of 1.1033. The move comes amid a broad-based dollar weakness, which is in part due to a significant strengthening in the yuan earlier after a report of a possible currency pact in the partial US-China trade deal. However, the upside impetus is limited at this stage as traders are cautious awaiting more clarity on trade talks in Washington. Now, as the 1.10 figure has become a support level, the immediate resistance comes around the swing region of 1.1050-1.1055.
USDJPY struggles for direction below 108.00 after wild fluctuations during the Asian session. After a brief spike towards 107.80, the pair got back below the 100-DMA and turned negative on the day, which confirms a cautious tone in the markets. The headlines from the US-China trade talks will have a large impact on the price action down the road, with should risk aversion reemerge, the dollar could easily challenge the 107.00 figure and plunge to the lows below 106.50.
Meanwhile, Brent crude is nearly flat amid a cautious trading ahead of trade talks. Prices are weighed by doubts in striking a trade deal and by a report of rising stockpiles in the United States. According to the EIA data, U.S. crude stocks rose by 2.9 million barrels last week, more than double analyst expectations of an increase by 1.4 million barrel. As downside risks prevail in the market, Brent could get back below the $58 handle in a negative scenario on the trade front.
Nathan Lambert, Head of Global FX Analytical Department