European stocks opened in the negative territory on Tuesday, extending losses to 2% in recent trading. Investors continue to express concerns over rising consumer prices in the United States that in turn could prompt the central bank to start policy tightening earlier than expected. Technology shares endured the heaviest selling in Europe ahead of new inflation data out of the US on Wednesday. The report is expected to show consumer prices rose by 3.6% in April compared with the same time last year. The yield on the benchmark 10-year US Treasury added 0.01% to 1.615% on Tuesday.
On the data front, German ZEW economic sentiment arrived at 84 in May, up from 70.7 previous, while the current situation came in at -40.1 in May versus -48.8 in April. Separately, the Eurozone ZEW economic sentiment for May climbed to 84.0 as compared to 66.3 in April. The upbeat figures reaffirmed optimism over the vaccine rollout in the region but did little to ease the selling pressure in the stock markets. Earlier in the day, the data showed that Chinese factory gate prices rose to a three-year high of 6.8% last month.
Against this backdrop, the UK FTSE 100 sheds 2.06% to 6,977, Italy’s FTSE MIB losses 1.54% to 24,420, France’s CAC 40 is down by 1.93% to 6,262, while the German DAX 30 sheds 2.08% to 15,079. US stock index futures stay under pressure, pointing to further losses during the session.
In currencies, the greenback lacks safe-haven demand, trading mixed on Tuesday. EURUSD reversed yesterday’s losses to climb back to the 1.2170 area. The common currency derived some support from stronger-than-expected European data mentioned earlier. Now, the pair needs to preserve gains and stay above the 1.2125 intermediate support in order to confirm the latest breakout and regain the 1.2200 barrier. However, the persistent risk-off tone ahead of the US inflation data could cap further gains in the short term.
Elsewhere, gold prices little changed on Tuesday following four consecutive days of gains. The precious metal surged to fresh three-month highs around $1,845 at the start of the week before retreating marginally. Now, the bullion faces strong resistance represented by the 200-DMA, today at $1,851. A decisive break above this level would further improve the short-term technical picture surrounding gold prices due to a weaker dollar.
Nathan Lambert, Head of Global FX Analytical Department