European markets are cautiously higher after a mixed start for the session on Wednesday. Earlier this week, Johnson & Johnson announced it has paused late-stage trials of its coronavirus vaccine candidate. Yesterday, Eli Lilly’s antibody treatment trial was put on hold as well, adding to concerns over the pandemic. Also on the negative side, the International Monetary Fund revised down its forecasts for economic growth this year. The global economy is now projected to contract by 4.4% in 2020. Coronavirus concerns and stalled talks in Congress for another stimulus package adding to a cautious tone in the markets these days.
Elsewhere, according to a person familiar with Brexit negotiations, the UK will not backtrack on its efforts to reach a post-Brexit trade deal with the European Union beyond Prime Minister Boris Johnson’s October 15 deadline. Johnson will decide on whether to end talks after the EU Summit. The upcoming meeting between Johnson and European Commission President Ursula von der Leyen could open doors towards a so-called soft Brexit.
Against this backdrop, the UK FTSE 100 index adds 0.24% to 5,983, Italy’s FTSE MIB adds 0.54 percent to 19,664, France’s CAC 40 rises by 0.17 percent to 4,956, while German DAX 30 gains 0.22% to 13,047. U.S. stock index futures point to recovery after a retreat seen yesterday.
In currencies, the pound retraced earlier losses and turned marginally higher on the day after the above-mentioned news surrounding Brext talks. Positive developments on this front could send GBPUSD higher in the coming days despite the resurgent demand for the safe-haven dollar. The greenback received a boost from halted virus trials and no sign of progress towards a US stimulus package. Also on the negative side, the UK Government announced a new three-tier system of local lockdowns while Bank of England Governor Andrew Bailey said that he did not think the UK economy was undergoing a sharp V-shaped recovery. Still, the pair bounced from one-week lows in the 1.2860 area and climbed back to the 1.2950 region in recent trading. Once above the 1.30 handle, the pound could extend the recovery and recoup yesterday’s losses.
Meanwhile, oil prices were once again rejected from the $42.60 intermediate resistance and dipped to the 20-DMA in recent trading as risk sentiment remained unstable, with downside risks persisting amid the ongoing pandemic. On Tuesday, the futures managed to rise despite a gloomy outlook released by the OPEC. The organization has again revised down its world oil demand in 2021 by 0.08 million barrels per day, to 96.84 million barrels per day. In the short-term, Brent needs to hold above the $42 handle in order to avoid a more pronounced retreat. In a wider picture, the risk of a break below the $40 figure persists.
Nathan Lambert, Head of Global FX Analytical Department