European stocks opened higher on Tuesday but gave up early gains as investors rushed for safety again amid the coronavirus that continues to spread across the continent fueling fears about a possible recession. On the other hand, the selling pressure is limited in anticipation of fiscal stimulus from governments after several central banks delivered monetary policy measures.
Today, Germany reported a sharp rise in cases while the French president announced that the European Union would be closing its external borders. Meanwhile, Italy and Spain remain the worst-hit countries. On Monday, US President Donald Trump said the country could be heading for a recession due to the coronavirus outbreak, which hurt Wall Street indexes hard overnight.
Against this backdrop, UK’s FTSE 100 sheds 1.73 percent to 5,061, Italy’s FTSE MIB rises by 0.36 percent to 15,033. France’s CAC 40 loses 1.97 percent to 3,804, while German DAX 30 plunges by 2.14 percent to 8,555. U.S. stock index futures show signs of a modest recovery after a rout witnessed yesterday.
In currency markets, the greenback accelerated the rally nearly across the board. EURUSD got back below the key moving averages and plunged below 1.10 for the first time this month. Furthermore, the German ZEW survey came in far below expectations, with the current situation falling to -43.1 and the expectations index declining almost 60 points to -49.5. The dismal release added to the selling pressure surrounding the common currency. Should the pair confirm a break below 1.10, the prices may target the next support around 1.0945.
GBPUSD plummeted to over six-month lows below 1.21 amid broad-based dollar strength. The cable added to its recent losses as the greenback attracted a safe-haven demand after investors have digested two emergency rate cuts by the Federal Reserve delivered last week. Meanwhile, mixed UK employment data passed nearly unnoticed, as traders are still focused on concerns over the economic impact of the virus outbreak.
As for commodity markets, oil prices have been flirting with the $30 handle since the start of the week, with downside risks persisting further. A daily close below this level will mark further deterioration in the technical picture for Brent. Considering the lingering worries about waning demand for oil amid the coronavirus outbreak, crude oil prices will likely remain under heavy selling pressure for the time being, with recession fears adding to the gloomy outlook for the market. Should Brent fail to hold above the $29.50 area, the futures may target the $29 figure next.
Nathan Lambert, Head of Global FX Analytical Department