European stock markets saw a rally at the start of the session as investors cheered the Bank of England’s decision to cut interest rates in an emergency move following a similar action by the Federal Reserve last week. However, the equities had to give up some gains afterward, as concerns over the spread of the coronavirus and the recent plunge in oil prices continue to unnerve market participants.
The coronavirus has infected nearly 120,000 people worldwide, killing over 4,200. Moreover, the virus has surpassed 10,000 cases in Italy and continues to spread across the globe, fueling recession fears and preventing stocks from a more robust recovery following a broad-based sell-off witnessed on Monday.
Against this backdrop, UK’s FTSE 100 gains 0.31 percent to 5,978, Italy’s FTSE MIB is flat at 17,866, France’s CAC 40 rises by 0.95 percent to 4,679, while German DAX 30 gains 0.77 percent to 10,556. U.S. stock index futures are pointing to a negative start after yesterday’s recovery by nearly 5%.
In currencies, EURUSD regained the upside impetus after a short-lived but fairly deep correction on Tuesday. The pair struggles to get back above the 1.1360 area but managed to receive support around 1.1275 during the earlier downside attempts. The euro was partially pressured by comments from Merkel, as she cited the experts who say that 60-70% of the population will be infected by the coronavirus. She also noted that the government cannot yet predict the economic impact of the coronavirus outbreak. In the short term, the pair will likely remain in a consolidative mode in anticipation of fresh signals. As long as the USD index stays depressed, the downside risks for the common currency are limited, with the 1.13 handle being in focus.
In commodities, Brent crude struggles to overcome the $40 handle earlier in the day and had to give up the initial gains. Furthermore, the prices got back below the $36 handle, as coronavirus concerns outweigh the speculations about stimulus measures from major central banks and governments, including Japan, the UK, Italy, and others. Oil traders don’t dare to step up buying, with recovery attempts meeting the offers after Russia unexpectedly exited the OPEC+ deal, and Saudi Arabia vowed to cut prices for its clients and ramp up production next month. In the near term, Brent will likely remain under the selling pressure, with the upside potential being limited.
Nathan Lambert, Head of Global FX Analytical Department