European stock markets are trading in a mixed manner on Monday, as investors express a cautious tone amid expectations of signing a phase one deal between the US and China. Lack of details of a highly anticipated deal makes market participants skeptical which is reflected in muted dynamics in global markets. On the positive side, U.S. Treasury Secretary Steven Mnuchin confirmed that the details of the deal will be published this week. Meanwhile, investors are nervous as protests continue in Iran over the downing of a Ukrainian commercial airliner.
Against this backdrop, UK’s FTSE 100 adds 0.28 per cent to 7,609, Italy’s FTSE MIB sheds 0.47 per cent to 23,906, France’s CAC 40 rises by 0.05 per cent to 6,037, while German DAX 30 loses 0.25 per cent to 13,449. U.S. stock index futures point to a higher open, as investors shift focus to the US-China trade deal.
In currency markets, the dollar is mixed against the majors amid the lingering uncertainty surrounding the details of a trade deal. EURUSD is making further recovery attempts after a rise from the 1.1085 region late last week. Now, the initial upside target for the common currency comes around 1.1140, where the 200-daily moving average lies. Lack of economic data makes investors hesitant at the start of a week, which is reflected in fairly muted dynamics.
Meanwhile, GBPUSD dipped below the 1.30 handle amid weaker-than-expected GDP data. The official release showed that the UK economy showed contraction in November, arriving at -0.3% versus 0% expected and 0% previous. Index of services came in at +0.1% 3M/3M versus +0.2% expected and +0.2% previously. The additional downside pressure on the cable came from the BOE's Vlieghe who opened the door to rate cuts, joining Governor Carney. As a result, the pair had to accelerate the decline and has been suffering losses for a fifth day in a row.
As for the oil market, Brent crude remains under the selling pressure, trying to cling to the $65 level. A daily close below this handle could send the futures even lower, down to the $64 handle, where the 200-daily moving average lies. Later this week, the market may derive support from the trade-related news, as China and the US are expected to sign the first phase deal. Also, EIA inventory data will be important, since another disappointment in the numbers could send the prices lower despite the trade deal.
Nathan Lambert, Head of Global FX Analytical Department