European stock markets turned lower on Thursday, as investor focus is back on the China coronavirus theme after the reports that the death toll and number of new coronavirus cases recorded in Hubei province rose sharply. In particular, the region reported an additional 242 deaths and 14,840 new cases on Wednesday, bringing the total number of people who have died amid the outbreak up to 1,310. As a result, risk sentiment deteriorated as concerns over the global economy reemerged. The IMF official said that the new strain of coronavirus was “clearly more impactful” on the world economy than the 2002-2003 SARS epidemic. The statement added to the negative tone in the financial markets.
In corporate news, Credit Suisse reported a 69% increase in annual net income, beating market expectations. However, the lender’s stocks are trading just marginally higher after a dip earlier in the day. Barclays shares shed 2% after the bank said it may not meet its return on equity target this year.
Against this backdrop, UK’s FTSE 100 sheds 1.41 per cent to 7,427, Italy’s FTSE MIB loses 0.66 per cent to 24,699, France’s CAC 40 is down 0.84 per cent to 6,053, while German DAX 30 declined by 0.74 per cent to 13,647. US stock index futures are pointing to a lower open, with Dow futures indicating the index would drop more than 200 points at the start of the session.
In currencies, EURUSD tumbled to fresh May 2017 lows in the 1.0850 region, as risk sentiment has deteriorated. Also, a slew of the recent downbeat economic data out of the Eurozone point to a growing probability of a rate cut by the ECB. Meanwhile, the US updates point to a strong economy. In other words, the pair is more and more affected by a divergence in the central banks’ monetary policy. In the near term, the USD behavior will dictate the pair’s dynamics, with safe-haven demand suggesting the common currency will remain under the selling pressure at this stage and may extend losses before we see a reversal. On the downside, the next support arrives at 1.0840. Once below, the pair may target the 1.08 handle for the first time since April 2017.
In commodities, Brent crude tries to hold above the $55 handle as the market extends its bearish correction after two days of gains. The futures failed to confirm a break above the $56 handle and thus had to retreat along with other risky assets. Besides, the International Energy Agency lowered its oil demand growth outlook to the lowest since 2011, which added to the gloomy picture in the market as concerns over energy demand reemerged after fresh negative news from China. In the immediate term, Brent needs to stay above $55 in order to regain the $56 handle afterwards. The possibility of a bullish scenario will depend on the general investor sentiment towards high-yielding assets and also on Russia’s decision on the OPEC+ proposal to cut production by additional 600 million barrels per day.
Nathan Lambert, Head of Global FX Analytical Department