After a turbulent week, European markets are trading higher on Friday, shifting to a recovery mode following the latest sell-off. Still, worries about the global economy persist amid further escalation in the US-China trade war and the inversion of the UD 2-/10-year Treasury yield curve, which is widely considered to be a signal of a looming recession. On the trade front, there are contradictory signals. While Beijing said that it would retaliate to the latest round of U.S. tariffs on Chinese goods, Trump said yesterday that the negotiators were holding productive talks and he expected a meeting to be held in September.
Anyway, amid the current recovery, UK’s FTSE 100 adds 0.58 per cent to 7107, Italy’s FTSE MIB rises by 1.08 per cent to 20,237, France’s CAC 40 gains 1.13 per cent to 5,296, while German DAX 30 rises by 1.07 per cent to 11,534. US stock index futures also gain, in part amid growing expectations of stimulus from the major central banks and as China signaled more support for its economy.
In currencies, the greenback extends gains against the euro and the yen. The yen demand turned sour amid a better risk sentiment but the pair still remains below 107.00 and the 106.00 support is still vulnerable as risk aversion could resume at any moment. In the short-term, USDJPY needs to break above the 106.50 intermediate resistance in order to target the above mentioned psychological level.
EURUSD extends losses for a fourth day in a row. The pair slipped back below 1.11 and is trading around 1.1070. The euro got under a double selling pressure due to stronger-than-expected US retail sales data and dovish comments from a ECB official who hinted at a massive stimulus package that could be delivered in September. As a result, the common currency dropped to two-week lows and remains on the defensive at the end of the trading week. Should building data and consumer sentiment index come in higher than expected, the pair may slip to fresh lows before the end of the trading day.
In commodities, Brent crude shows a modest recovery along with other risky assets but clearly lacks the upside impetus. After an earlier jump to $59.50, the futures retreated and keep barely above the opening levels in the daily charts. The short-term outlook for the market remains gloomy as traders continue to express concerns over the state of the global economy, especially amid the latest escalation in the US-China trade spat. The immediate support for Brent comes around $58.
Nathan Lambert, Head of Global FX Analytical Department