Dampened trade hopes sent the European stock markets lower on Monday, with major indices nursing losses after a sell-off in Asia. The sentiment in the global financial markets has deteriorated after Trump late last week said he had not agreed to any rollbacks, while previously, it was reported that Beijing and Washington had agreed to lift existing tariffs on one another’s goods. The contradictory signals brought uncertainty and fueled demand for safe-haven assets including gold and the Japanese yen. Political tensions in Hong Kong added to the negative risk sentiment at the start of the trading week.
On the positive side, fresh data out of the UK showed the economy managed to avoid a technical recession after contracting by 0.2% in the second quarter, with the GPD grew by 0.3% in the third quarter while British employers’ hiring plans have recovered from an 18-month low. Meanwhile, U.K. manufacturing output fell by 0.4% in September, a 1.6% drop on a yearly basis.
Against this backdrop, UK’s FTSE 100 loses 1.23 per cent to 7268, Italy’s FTSE MIB sheds 0.35 per cent to 23,451, France’s CAC 40 is flat at 5,889, and German DAX 30 declined by 0.45 per cent to 13,169. Meanwhile, US stocks index futures point to lower open as investors continue to digest recent remarks by Trump, with Dow futures indicate a negative open of over 100 points.
In currencies, the greenback turned lower against the majors after some consolidation earlier in the day. Dollar demand has waned amid the reemerging uncertainty surrounding the trade war that hurts the US economy. Interestingly, GBPUSD shrugged off the lower than expected UK GDP data and jumped to daily highs marginally below the 1.29 handle. The pound derived support from comments by UK's Javid saying "fundamentals strong," and other's from Nigel Farage, supporting the Conservative party. In particular, Farage said he will not contest 317 seats that Conservatives won at the last election.
Meanwhile, EURUSD turned into a recovery mode around the 1.1016 low and appreciated to the 1.1040 area. However, the upside impetus remains limited due to a negative risk sentiment. The technical picture shows that the pair is a sell on rallies after last week’s technical break, with the 1.10 figure remaining under threat as long as the pair stays below the 100-DMA around 1.11. in the short-term, the markets will be focused on news headlines related to the trade talks, with most economic data and events are scheduled for the second half of the week, including Powell’s two-day testimony on Wednesday and Thursday.
In the oil market, Brent derived support from the 100-DMA and managed to trim its daily losses, trying to cling to the $62 handle which remains in traders’ focus as the futures have yet to confirm a break above this level. The prevailing risk aversion caps bullish attempts in the market which remains vulnerable to further losses, especially if the industry data this week point to further growth in the US crude oil inventories and Federal Reserve’s Powell will sound more upbeat on the economy and monetary policy.
Nathan Lambert, Head of Global FX Analytical Department