In his latest speech, Trump has threatened to substantially increase tariffs if China failed to agree a trade deal, which caused risk aversion across the board amid signs of fresh escalation of the long-standing trade dispute between the world’s two largest economies. the US President also said a trade deal was close, but this message failed to inspire investors as he failed to offer details on when or where the deal would be signed. The intensifying unrest in Hong Kong added to the negative sentiment as well. Also, investors await comments from U.S. Federal Reserve Chairman Jerome Powell, which brings additional uncertainty and a cautious tone to the markets.
Against this backdrop, UK’s FTSE 100 loses 0.58 per cent to 7322, Italy’s FTSE MIB sheds 1.19 per cent to 23,499, France’s CAC 40 declines by 0.51 per cent to 5,889, and German DAX 30 loses 0.82 per cent to 13,174. Meanwhile, US stocks index futures retreat as investors digest the contradictory message from US President.
In currencies, the dollar is little changed against the majors, in part due to a low trading activity ahead of Powell’s testimony in Congress. EURUSD stays around the lows at 1.10 and looks vulnerable to further losses despite the report that showed the Eurozone industrial production increased by 0.1% in September. Production rebounds modestly for a second month in a row but analysts so far don’t dare to say the indicator hit the bottom. Moreover, annual growth in Germany has fallen to -5.3%, far worse than the -2% in Italy.
Later in the day, traders will focus on the US CPI data and Powell’s testimony in Congress. The inflation report will hardly serve as a market-mover as the Fed’s preferred gauge of inflation is the PCE deflator, and traders will rather pay closer attention to a message from the Federal Reserve Governor. Should Powell take a less dovish approach, the greenback may gain across the board and sent the EURUSD pair below the 1.10 handle.
In commodities, Brent extends losses on Wednesday, with prices challenging the 100-DMA around $61.40. Apart from risk aversion, the market feels the downside pressure from the latest comments by OPEC’s Barkindo. According to him, it’s too early to say if there is a need for further output cuts. Barkindo also noted that OPEC still will hold five technical meetings before December meeting in Vienna, which somehow capped the negative impact from his previous statement as traders realized that the producers could yet arrange additional measures to support the global oil market. Later today, API will reveal its weekly report, which could send Brent even lower should the data point to another increase in crude oil inventories.
Nathan Lambert, Head of Global FX Analytical Department