After a strong finish on Wall Street and mixed trading in Asia, European stock markets climbed on Friday, as investors are sheering fairly strong China industrial production data suggesting the world’s second economy may recover earlier than anticipated. Industrial output rose 3.9% last month, beating forecasts of a 1.5% rise, the first monthly rise since the start of this year. Other data showed that the German economy shrank by 2.2% in the first quarter, as expected. Still, it was the sharpest contraction since the financial crisis.
Also, the lingering Sino-U.S. tensions continue to cap the upside momentum in global equities. According to the latest news, Washington is mulling barring Huawei from acquiring semiconductors and chipsets made using US technology. China, in turn, said it may respond by investigating Apple and suspending Boeing airplane purchases. After these headlines, risk sentiment could deteriorate in the coming hours.
So far, UK’s FTSE 100 gains 0.56 percent to 5,774, Italy’s FTSE MIB edges higher by 0.16 percent to 16,898, France’s CAC 40 trimmed earlier gains to just 0.06 percent to 4,275, while German DAX 30 rises by 1.10 percent to 10,451. U.S. stock index futures are edging higher but may reverse gains and turn negative by the opening bell amid the US-China news.
In currencies, the dollar is under a marginal downside pressure on Friday following recent gains. However, the safe-haven USD demand could pick up again as risk aversion may reemerge after the latest headlines on the trade tensions between the US and China. EURUSD is changing hands around 1.08, threatening fresh lows after a rejection from the 1.09 barrier earlier in the week. The common currency is marginally supported by the reports that Italy plans to allow free movement within the country from 3 June. On the data front, Eurozone GDP second estimate arrived at-3.8% in the first quarter, in line with the preliminary result. So, the report failed to affect the short-term dynamics in the pair.
Elsewhere, crude oil prices stay in the green after the rally witnessed yesterday along with rising demand for risky assets. Brent crude climbed to one-month highs above the $32 handle and retreated partially since then. Despite the rebound, the current upside bias looks unsustainable as the fundamental picture in the oil market remains negative, and risk sentiment is still unstable. In case of a downside correction, the prices will need to hold above the $30 psychological level.
Nathan Lambert, Head of Global FX Analytical Department