European stocks are trading lower on Tuesday as investors closely monitor political developments across the globe, with uncertainty in Italy, Hong Kong and Argentina are in market focus. In Italy, the Senate is due to meet later today to set the date for a motion of no confidence in the government. Meanwhile, Hong Kong protests escalated and shut down the city’s airport, resulting in threats from Chinese media. In Argentine, peso and stock market plummeted amid a center-right President Mauricio Macri’s unexpectedly poor performance in a primary vote.
Against this backdrop, UK’s FTSE 100 sheds 0.36 per cent to 7200, Italy’s FTSE MIB loses 0.41 per cent to 20,180, France’s CAC 40 loses 0.40 per cent to 5,289, while German DAX 30 declines by 0.80 per cent to 11,586. US stock index futures are also edging lower due to rising concerns about the state of the economy.
On the data front, the UK revealed mixed labor market data. The unemployment rate coming in a tenth higher than expected at 3.9%. On the other hand, the trend in employment growth was quite strong, which pointed to a more robust labor market picture. Ex-bonus wage growth was a bit stronger than expected at 3.9% y/y, hitting its highest growth rate since before the financial crisis.
Meanwhile, Germany's August ZEW data was very disappointing, with current conditions falling from -1.1 to -13.5 (expected -6.3), and expectations from -24.5 to -44.1 (expectations -28.0). The ZEW institute said that the downside came from the US-China trade dispute, the risk of competitive devaluation, and the increased likelihood of a no-deal Brexit. All these factors will likely put further strain on German exports and industrial production going forward, added ZEW.
Despite the dismal data from the largest Eurozone economy, EURUSD showed only a brief bearish reaction to the release, with the pair returned above 1.12 after a short-lived decline towards the lows around 1.1180. At the same time, the common currency still lacks the impetus to make a clear break above the 100-DMA which serves as the immediate resistance and now comes around 1.1225.
In commodities, oil prices stay nearly unchanged, with Brent has been trading lately in a low-volatility environment. The futures are holding above the $58 handle which serves as the immediate support. On the upside, Brent needs to challenge the $59 level in order to see a more pronounced upside pressure. Political concerns across the globe fuel fears of a slowdown in global economy, which prevents oil prices from a sustainable recovery. Later in the day, the API will reveal its traditional weekly report. The data could put Brent under pressure should the release point to a rise in US crude oil inventories.
Nathan Lambert, Head of Global FX Analytical Department