European stocks are trading lower on Tuesday as investors continue to closely monitor the developments in Saudi Arabia, with the lingering threat of military confrontation makes investor nervous after U.S. President Donald Trump said that it was likely Iran was behind the attacks on oil plants in Saudi Arabia. Also, market participants are getting more cautious amid the impending policy meetings for the U.S. Federal Reserve and the Bank of England this week. Investors will continue to look for further clues as to what happened in the kingdom, and whether the Saudis blame Iran as well.
On the data front, investor sentiment in Germany improved more than expected in September, with the ZEW indicator rose 21.6 points to a -22.5 reading, versus -37.0 expected. At the same time, the ZEW Institute cautioned that the outlook for Europe’s largest economy remains negative amid trade disputes and Brexit uncertainty.
Against this backdrop, UK’s FTSE 100 loses 0.05 per cent to 7317, Italy’s FTSE MIB declines by 0.69 per cent to 21,816, France’s CAC 40 adds 0.06 per cent to 5,606, while German DAX 30 declines by 0.16 per cent to 12,360. US stock index futures slip along with European shares amid the lingering geopolitical worries.
In currencies, the dollar turned lower against the European counterparts but retains the upside momentum against the Japanese yen. The yield on 10-year Treasuries declined one basis point to 1.84%. EURUSD has been recovering within the range, with upside impetus is limited at this stage, and the overall trading activity may decline ahead of the Federal Reserve decision. Middle east tensions will likely cap the bullish potential in the euro in the near term, with the pair may regain some more ground on Wednesday should the Eurozone CPI data exceed expectations and the Fed cut rates and revise down its so-called dot plots. Technically, EURUSD needs to regain the 1.11 barrier to see a more positive short-term picture.
Meanwhile, after the initial attempts to extend the rally, crude oil plunged, giving back some of yesterday’s 15% surge, amid a report that Saudi output will return to normal sooner than expected. Earlier, it was reported that the country has enough oil in storage to make up the lost production for 27 days, but it may take weeks or even months to repair the damage to the processing plant and oil fields. Later in the day, traders will assess fresh weekly API data on crude oil inventories in the US.
Nathan Lambert, Head of Global FX Analytical Department