European stock markets are edging higher on Friday, rebounding after a sharp sell-off seen in the previous session, with the regional indexes posting the largest losses in more than three weeks on Thursday. However, the recovery potential remains limited as investors keep worrying about the economic impact of the second wave of the coronavirus, the ongoing Brexit talks, US stimulus talks, incoming economic data, and the November Presidential election in the United States.
On the data front, Eurozone September final CPI came in at -0.3%, in line with the preliminary estimate. Core CPI arrived at +0.2%, also unchanged from the preliminary result. Eurozone August trade balance came in at 21.9 billion euro versus 18.0 billion euro expected. Exports grew by 2.0% m/m while imports increased by 0.5% m/m, leading to the larger trade surplus in August.
Elsewhere, the ECB governing council member, Olli Rehn, said that the central bank could live with some inflation overshoot, with the new economic realities guiding the Fed also applies to Europe. He also noted that recent indicators, especially the services sector, have been somewhat disappointing, which amplifies the downside risk to the economic recovery. Earlier in the day, the ECB governing council member, Gabriel Makhlouf, highlighted that rate cut is not the best tool to use in the current circumstances.
Against this backdrop, the UK FTSE 100 index adds 0.64% to 5,869, Italy’s FTSE MIB gains 0.06 percent to 19,078, France’s CAC 40 rises by 0.93 percent to 4,882, while the German DAX 30 recovers by 0.35% to 12,748. U.S. stock index futures are little changed ahead of fresh economic data including the retail sales report.
In currencies, the dollar retreats slightly after a rally seen on Thursday. EURUSD has settled around 1.17, refraining from a recovery above the 20-DMA as traders keep a cautious tone amid the lingering uncertainty and rising coronavirus cases in the continent. Later today, the pair could be affected by US retail sales data that is set to show a moderate rise after weak results for August. However, the general impact on the markets will likely be limited as investors are still focused on the pandemic and stimulus talks.
In commodities, Brent crude remains on the defensive on Friday. The futures managed to trim intraday losses yesterday but came back under pressure during the last trading day of the week as demand-related concerns continue to unnerve traders. Also on the negative side, OPEC Secretary-General Mohammed Barkindo admitted that fuel demand was looking “anemic.” Besides, the technical committee of the OPEC+ ended a meeting yesterday expressing their fears over rising oil supply. During the European hours, Brent got back under the 100-DMA while holding above the $42 handle.
Nathan Lambert, Head of Global FX Analytical Department