European stocks rise along with global markets on Friday amid positive signals from US-China trade negotiations and discussion over Brexit. After Trump characterized the talks as “very, very good”, investors hope for a limited trade deal and a delay to planned increases in U.S. tariffs as a result. The US leader meets with Chinese Vice Premier Liu He at the White House later today. Meanwhile, following a meeting with British Prime Minister Boris Johnson, Irish Prime Minister Leo Varadkar said a Brexit deal could be clinched by the end of October to allow the U.K. to avoid a disorderly Brexit. As a result, J.P. Morgan has lifted its outlook for the chances of a Brexit deal from 5% to 50%, which added to the positive sentiment on Friday.
Against this backdrop, UK’s FTSE 100 adds 0.34 per cent to 7211, Italy’s FTSE MIB gains 0.81 per cent to 21,933, France’s CAC 40 edges higher by 0.94 per cent to 5,621, and German DAX 30 rises by 1.78% to 12,380. Meanwhile, US stocks index futures are also trading in a positive territory amid hopes for a breakthrough in trade negotiations.
In currencies, the dollar is lower against the European counterparts. GBPUSD extends the rally and is already up 3%, showing the biggest two-day rally in more than three years on hopes of the UK and the EU reaching a Brexit deal before the October 31 deadline. In the latest Brexit-related news, following his meeting with British Brexit Secretary Barclay, the European Union Chief Brexit Negotiator Michel Barnier said that they had a constructive meeting. Meanwhile, Ireland's Varadkar said he anticipates the UK to make more detailed proposals and added that it is possible that talks may now enter the tunnel. The pair jumped above 1.26 and registered early-July highs around 1.2680. Now, the cable targets the 1.27 handle, which if broken could open the way to 1.2750.
EURUSD spiked to September 20 highs around 1.1060 and seems to have confirmed a break above the 1.10 handle after it surpassed a local 1.1030 resistance. The pair’s bullishness is mainly due to trade optimism, putting the selling pressure on the greenback across the board. At the same time, the upside momentum is limited as the EURGBP cross receded further to the area below the 0.88 handle, down to five-month lows amid a strong rally in sterling on impressive Brexit news. By the way, rising odds for a Brexit agreement come ahead of the key EU Summit due on October 17-18, which adds to positive sentiment around the British currency. A daily close above the 1.1030 area will further improve the short-term technical picture for EURUSD.
As for oil prices, Brent has briefly jumped to $60.64 but failed to preserve gains and gradually slipped back below the key $60 handle. Earlier in the day, the prices rallied amid trade optimism and rising geopolitical tensions after reports of an Iranian tanker explosion in the Red Sea. However, the bullishness receded partially as the IEA cut oil demand outlook on growing fears of global economic slowdown. Technically, the futures need to sling to the $60 handle in order not to lose the upside momentum.
Nathan Lambert, Head of Global FX Analytical Department