European stock markets are trading higher on Tuesday as investor optimism over trade war overshadowed concerns over the slowing global growth for the time being. Markets cheered the reports that the US and Chinese trade representatives resumed the talks (despite the arrest of of Huawei’s CFO) that could pave the way for resolving the key trade issues at some point later. Anyway, we should admit that the trade war is far from over, and new escalations a still possible. As such, German DAX 30 adds 1.54% to 10,785, Italy’s FTSE MIB recovers by 1.04 per cent to 18,601, Britain’s FTSE 100 gains 1.14 per cent to 6,798, while France’s CAC 40 rises by 1.61 per cent to 4,818. Meanwhile, US stock index futures reversed earlier losses and climb amid further decline in the Treasuries.
The greenback turned red after yesterday’s rally that was fueled by sterling’s plunge to April 2017 lows marginally above the 1.25 figure as May delayed the parliamentary vote. Today, the cable is trimming loses but remains under a general pressure due to a heightened uncertainty surrounding Brexit. Juncker-May meeting will take place later today and there are contradictory reports ahead of the talks. The European officials insist that May won’t get backstop clarification that will carry any legal weight. Eralier, Ireland’s Coveney said there is potential for EU declaration on backstop. Meanwhile, Juncker himself is surprised by Brexit turn of events. Considering the upcoming meeting and the risk of disagreement between the two parties, the downside risks for the sterling still prevail.
EURUSD switched to a recovery mode as well but still doesn’t dare to challenge the 1.14 barrier as the local dollar retreat is not enough to overshadow the worries about the Italy’s budget woes. Tria and Conte want the deficit target to be around 2.0%, while Di Maio and Salvini insist on a higher target of 2.1%-2.2%. Judging by these numbers and a stiff position on both sides, it is highly unlikely that the revised plan will satisfy the European Commission. In this context, the next key risk event for the euro is tomorrow’s meeting between EU’s Juncker abd Italy’s Conte. Technically, the pair needs to stay above the 1.1350 area to avoid another wave of profit-taking, but bearish risks are still there.
USDJPY is inching lower after yesterday’s rally that took the pair to the 113.35 area. The price holds above the 113.00 barrier today, despite the risk sentiment has improved somehow. The volatility in the pair remains elevated which confirms the unstable investor sentiment for the time being. Despite the dollar has shifted to a higher trading range after rejection from lows below 110.00, the short- and mid-term outlook looks mixed, with risks are tilted to the downside due to a number of global risks, shaking the risky assets from time to time.
Crude oil prices have stabilized marginally above the $50 figure but the overall sentiment in the market looks vulnerable and unsustainable, despite the OPEC+ countries agreed production cut. There are still fears that the US shale producers and Trump’s hostility to higher prices will cap the upside potential in Brent and WTI. Besides, traders don’t trust the OPEC exporters that could be inclined to cheating on their obligations. In other words, traders don’t expect that the measures taken over the weekend will help to balance the global market. In the short term, investors will shift focus on API report. Should the release point to a rise in crude oil stockpiles, Brent will get back below the $60 handle. Otherwise, the prices could accelerate the current indecisive rebound.
Gold prices resumed the ascent after a rejection from mid-2018 highs above $1,250 yesterday. The yellow metal is approaching the tops again but it looks like it lacks the momentum to challenge the key threshold as the pressure on the greenback is limited. In the longer term, gold could regain its attractiveness should the dollar lose its steam and break the bullish trend. For this to happen, we need to see the real risk of a pause in Fed rates hiking as well as convincing ‘bearish’ signals from the clobal economy.