As the deepening Turkey’s crisis fuels contagion fears and goes beyond the limits of a local event, global financial markets remain in turmoil on Monday. So the European stocks keep nursing loses, though the bearish pressure seems more modest than during the Asian hours. The panic has abated partially against the backdrop of Turkish government interventions as the officials decided to step in to contain the record Lira devaluation. However, investors, being aware of Erdogan’s position, remain nervous as they realize that the government’s opportunities in terms of actions are limited. As such, Britain’s FTSE 100 loses 0.37 per cent to 7,638, France’s CAC 40 recovers by 0.06 per cent to 5,418, while German DAX 30 declines by 0.38 per cent to 12,377. US stock index futures continue to slide on signs of continuing economic woes in Turkey.
The developments in the currency markets are also driven by the Turkish factor. Therefore, the USD demand continues to prevail as safe havens remain attractive amid the rising threat of contagion, especially in the banking sector. As such, the EURUSD pair refreshed long-term lows in the 1.1364 area and fails to stage a meaningful recovery even as investors seem to switch off the “panic button”. The euro feels the additional pressure amid the recent ECB statement on concerns over the risks for the regional banks from the Turkish crisis. So as long as theses concerns persist in the markets, the single currency will be vulnerable to further losses and will remain attractive for sales on recovery attempts. The immediate resistance now comes at 1.15, where the local offers lie.
GBPUSD has been trading not far from fresh one-year lows in the 1.2720 region, which is the last line of defense ahead of the 1.27 level. A loss of this figure will further amplify the bearish picture following nine weeks of decline in a row. The additional risk for the sterling is the new round of Brexit talks. Meanwhile, the upcoming economic data could bring some local changes in the pound’s dynamics. On Tuesday, the UK average weekly earnings data is due, while on Wednesday and Thursday CPI and retail sales figures will come out. The general economic picture could support the weak sterling if the numbers come in better than expected, though is wont’ change the tone and sentiment in the BoE’s MPC as the regulator firmly decided not to hurry with further tightening.
Brent crude struggles for direction Monday after failed attempts to regain the $73 level. On the one hand, the market is still supported by the sanctions on the Iranian oil exports due in November. On the other hand, there are some bearish factors that contain the bullish attempts at this stage. They are the rising drilling activity in the US – drillers added ten oil rigs last week, bringing the total count to 869, which is the highest level since March 2015. Besides, Brent feels the negative impact from the ongoing US-China trade war which could hurt global growth and oil demand as well. The general risk-off sentiment in the global markets adds to the bearish pressure as well. Meanwhile, OPEC has lowered 2019 oil demand growth by 20k bpd to 1.4 mil bpd in its latest monthly report, which also showed that the 2019 non-OPEC oil supply estimate was revised up by 30k bpd to 2.13 mil bpd. As such, the upside potential for prices remains limited, and the sell on rallies strategy still looks attractive. Only above the 20-DMA at $73.50, the downside pressure will start to recede in earnest.
Gold prices dropped below the $1,200 critical mark for the first time since March 2017 as the greenback remains on the offensive. The Turkish crisis background confirms that the metal has mostly lost its allure as a safe haven on the back of Fed rates hiking. As the dollar positions remain strong, and its bullish trend continues to get even firmer, the prospects for a recovery in gold prices look miserable so far, even as the metal has long been oversold. The price dropped to $1,194 and now looks set for a break of the next support at $1,190.