European stocks tried to ignore emerging market losses initially, but have reversed earlier gains later amid a number of factors. First, Turkey announced raising tariffs on some US exports. In particular, the country doubled tariffs on US cigarettes, cars and alcohol. As a result, the flight to safety trade has intensified despite the lira continues its recovery. Meanwhile, Tencent poor Q2 earnings caused shockwaves across markets and added to the bearish pressure in Europe as well. Commodities continue to bleed – gold extended decline to the lowest level since January 2017 – and it's not making for a good time in stock markets either. As such, Britain’s FTSE 100 loses 1.10 per cent to 7,526, France’s CAC 40 recovers by just 1.12 per cent to 5,342, while German DAX 30 rises by 0.93 per cent to 12,243. US stock index futures poised to slip as Turkey remains in focus.
Dollar and yen lead the charge as risk-off sentiment continues to persist. Mixed US economic data failed to ease the buying pressure on the greenback. The empire manufacturing index for the month of August came in better than expected at 25.6 vs. 20.0 expected. Q2 unit labor costs came in at -0.9 per cent vs. 0.9 per cent expected, while prior result was revised from +2.9 to +3.4 per cent. Meanwhile, nonfarm business sector labor productivity increased 2.9 per cent during the second quarter, the fastest in three years. In general, the macro data was decent, despite some weak spots and hasn’t affected the overall sentiment around the buck which continues to be driven by risk dynamics.
EURUSD came even closer to 1.13 earlier today, reflecting traders concerns over the domino effect from the Turkish crisis. Against this backdrop, the single currency remains vulnerable to further losses and stays on the defensive as the dollar demand persists amid risk-off environment. As such, there is a risk of challenging the 1.13 figure от the short term. Any fresh bullish signal for the greenback or any sign of a deepening in the Turkish crisis could further derail euro’s positions, while recovery attempts will continue to attract sellers.
GBPUSD dropped below the 1.27 mark for the first time since mid-2017 and remains under intense pressure, losing ground for a sixth week in a row. The UK foreign secretary once again expressed worries that EU talks may not yield a Brexit deal and highlighted that more countries need to realize that a no-deal Brexit outcome would be a mistake. This, coupled with the persistent buying pressure on the buck further increased the bearish pressure on the pair. Against this backdrop, the pound has ignored fresh UK economic data that showed the retail sales recovered in line with expectations last month. Such a behavior confirms that the pound is now more focused on dollar behavior and Brexit developments. The price touched a fresh low of 1.2674 and could extend losses to the 1.2640 next support zone in the near future.
Brent crude has been trading on the defensive predominantly. Yesterday, the price briefly dipped to mid-April lows around $71 and struggles to regain the $72 figure on Wednesday. The intermediate support comes at $71,50, while the intraday high was reached ahead of the $72,50 region. It looks like commodity traders are in a wait-and-see mode now as the price activity is rather subdued. In general, the bearish risks for Brent still prevail as the geopolitical tensions that could derail global oil demand continue to derail attractiveness of commodities including metals.
By the way, gold extends losses and dived below the $1,190 area for the first time since early 2017. The price reached a low of $1,183.82 and looks set for further decline in the short term as the greenback remains supported by a risk-off sentiment. The next bearish target now comes at $1,180, which if broken will open the way to $1,169.