European stocks advance on Tuesday, rallying across the board as investors are cheering signs of a slowing spread of the coronavirus pandemic. Market participants appeared unfazed after reports said China had imposed sanctions on 11 U.S. citizens, as many feared that the response could be more aggressive. Meanwhile, Russia president Putin said he has approved the first Russian-produced coronavirus vaccine and expresses hopes that his country will start mass production of coronavirus vaccine.
On the data front, the German ZEW economic sentiment came out at 71.5 points in August, rising from 59.3 reported in July. The current conditions figure deteriorated to -81.3, worse than projected and below -80.9 reported last month. In the UK, the unemployment rate remained at 3.9% in June while wages dropped by 1.2% when including bonuses. The claimant count change for July disappointed by leaping by 94,400, far worse than 10,000 projected.
Against this backdrop, the UK’s FTSE 100 gains 2.31 percent to 6,190. Italy’s FTSE MIB edges higher by 2.83 percent to 20,208, France’s CAC 40 adds 2.69 percent to 5,041, while German DAX 30 adds 2.72 percent to 13,032. U.S. stock index futures are surging on Russian coronavirus vaccine news. Meanwhile, the US July NFIB small business optimism index arrived at 98.8 versus 100.5 expected.
In currencies, the dollar turned lower against the euro and pound while staying on the offensive against the safe-haven yen amid upbeat risk sentiment. EURUSD has already recouped yesterday’s losses and climbed back to the 1.18 level despite mixed economic data out of the Eurozone and Germany. As risk demand improved and stocks shifted into a rally mode, demand for the high-yielding common currency picked up after the recent downside correction that took the prices to one-week lows around 1.1720 earlier in the day.
USDJPY climbed to a local high of 106.23 earlier in the day but failed to preserve gains and retreated partially. Having settled marginally above the 106.00 handle. The 20-DMA continues to act as the immediate barrier for bulls, preventing the greenback from a more sustainable recovery. It looks like the pair will stay in a consolidative mode in the short term, with the 106.00 handle remaining in market focus.
Meanwhile, oil prices rose to the $45.50 area and remain on the offensive amid a broad-based rally in risky assets. A more subdued USD demand also helps to provide the current bullish impetus for Brent crude. A daily close above the $45 level will confirm the latest breakout. However, downside risks continue to persist in the market, with the current ascent still looking vulnerable and unsustainable.
Nathan Lambert, Head of Global FX Analytical Department