European stock markets are trading lower on Monday as dismal December trade figures from China – exports registered the biggest slump in two years - heightened concerns over a slowdown in global growth. In addition, China’s premier Li said economic growth faces increasing downward pressure in 2019. Meanwhile, it’s the 24th day of the US government shutdown which is the longest on record for the country and adds to investor worries across the globe as political gridlock could pose a threat to economic growth at some stage.
The earnings season is underway, and Citigroup revealed its numbers - the earnings beat expectations, while revenues came in weaker than expectations, sending the stock lower by 1.0%. The heightened uncertainty surrounding Brexit doesn’t bode well for the regional markets as well. As such, German DAX 30 sheds 0.59% to 10,823, Italy’s FTSE MIB loses 1.03 per cent to 19,092, Britain’s FTSE 100 sheds 0.99 per cent to 6,849, while France’s CAC 40 declines by 0.74 per cent to 4,745. US stock index futures are trading lower ahead of corporate earnings season and amid growing global concerns after the ugly Chinese trade data.
The biggest mover today is the pound which remains volatile amid a slew of Brexit-related headlines. The cable managed to recover from daily lows and briefly jumped to three-month highs just below the 1.29 handle after the UK PM May said that if parliament rejects the deal, outcomes include no Brexit at all, besides a no-deal divorce. But the pair slipped from highs quickly amid the reports that the UK Conservative whip Gareth Johnson resigns, which is obviously no good for May’s position ahead of tomorrow's vote. In his decision, Johnson cited the fact that the current deal doesn't respect the referendum result because it would leave the UK overly tied to the EU. He noted that he couldn't whip the votes on a deal he couldn't support himself.
These developments only increase the uncertainty and downside risks within the Brexit process and could add to pound’s volatility down the road. The cable may drop to 1.27 and lower should May lose the vote on Tuesday. But as the ‘no’ outcome is nearly fully priced in already, the sell-off could be brief and limited. As a reminder, the EU said it’s not in a position to agree to anything that changes withdrawal agreement in Brexit backstop letter.
EURUSD is trading in a neutral channel, seeking a directional impetus amid lack of catalysts. The pair faced a local resistance in the form of a 100-DMA around 1.1480 that is standing on the way to the 1.15 which serves as a resistance again. Eurozone November industrial production contracted by 1.7% versus -1.5% expected, while Germany December wholesale price index came in at -1.2% versus +0.2% expected. Fresh releases confirm the signs of slowing growth in the region, which caps the euro’s upside potential. On the other hand, the dollar remains under the general pressure amid the ongoing government shutdown and a more ‘dovish’ tome by the Federal Reserve. To break out of the current consolidation channel, the pair needs some fresh catalysts and news.
Brent crude is under a limited pressure, struggling to get back above the $60.00 figure but managing to hold above the $59 handle. The barrel is stuck within a limited range at the start of a new trading week, awaiting fresh news from the industry. Baker Hughes report pointed to another decline in the number of oil rigs, so it’s unlikely that the US shale oil production will increase in the weeks to come, and should the inventories continue to decline, the market could get a relief from this front. On the other hand, the upside potential will remain limited as long as investors continue to worry about global economic growth. Another dismal report from China could send the prices lower this week.
Nathan Lambert, Head of Global FX Analytical Department