European stocks are climbing higher on Monday with the banking sector is leading the gains after German lenders Deutsche Bank AG and Commerzbank AG announced Sunday that they had entered merger discussions. In general, investors continue to expect further details on the US-China trade relations. According to the latest reports, a proposed summit between President Donald Trump and China's Xi Jinping to end the trade war may be pushed back to June. This remaining uncertainty seems to be limiting risky assets appeal but are having little impact on investor sentiment at the moment.
Against this backdrop, Britain’s FTSE 100 adds 0.68 per cent to 7,277, France’s CAC 40 is up 0.13 per cent to 5,412, while German DAX 30 turned negative on the day and now loses 0.14 per cent to 11,669. US stock index futures see some early pressure as Boeing shares drop on FAA probe.
The dollar is trading in a mixed manner at the start of the week. EURUSD extends the ascent, challenging two-week highs around the 1.1350 region. The pair is adding gains from Friday, when it confirmed a break above the 1.13 handle. Eurozone January trade balance was at €17.0 billion versus €15.0 billion expected, which gave the additional lift to the common currency. Moreover, the prior result was revised from €15.6 billion to €16.0 billion. Instead of the renewed dovish stance from the ECB, traders prefer to focus on the broad risk-appetite trends now, which plays into euro’s hands.
In the days to come, the pair’s direction will depend on the tone of the upcoming FOMC two-day meeting. Amid recent statements by the Federal Reserve officials, the bank is expected to lower their interest rate forecasts to show no further tightening in 2019.
Brent crude prices have settled around the $67 figure and struggle to decide on the short-term direction. In a wider picture, OPEC-led output cuts and US sanctions on Iran and Venezuela continue to support the broader markets. On the other hand, the barrel struggles to get higher amid concerns that an economic downturn may dent fuel consumption. As such, demand weakness on slower economic growth is the key downside risk for prices. By the way, US manufacturing output fell for a second straight month in February, confirming that the world's biggest economy has been slowing down in the first quarter. In the short term, Brent will likely remain in the familiar range awaiting further clues to show a more directional impetus.
Gold prices extend gains for a second day in a row on Monday, with earlier attempts to break below the $1,300 mark brought bids into play so the bullion turned positive on the day. However, the yellow metal still obviously lacks the upside momentum at this stage as the downside pressure on the dollar is modest. But the bullion may receive a chance for a bullish break in the days to come, should the FOMC meeting comes as dovish. Technically, gold needs a daily closure above the $1,300 figure in order to get back above the $1,310 handle this week.
Nathan Lambert, Head of Global FX Analytical Department