After a positive start, European stock markets turned mixed on Monday, as investors have already digested fresh positive news from the trade front and now expect further details on the possible partial deal between the US and China. As Chinese Vice Premier Liu He reported, he had a phone call over the weekend with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer. The two sides had constructive discussions and agreed to remain in close contact.
Against this backdrop, UK’s FTSE 100 adds 0.08 per cent to 7309, Italy’s FTSE MIB loses 0.25 per cent to 23,528, France’s CAC 40 sheds 0.27 per cent to 5,922, and German DAX 30 declines by 0.27 per cent to 13,208. Meanwhile, US stocks index futures are trading marginally higher, suggesting the markets could extend the rally after a record close on Friday.
In currencies, the dollar is on the back foot against the European currencies on Monday and extends gains against the safe-haven currencies including the Japanese yen. EURUSD is rising for a third day in a row, after a plunge to lows below the 1.10 handle. In the short term, the initial hurdle for euro bulls comes around the 1.1070 figure, which is standing on the way to the 100-DMA. However, further upside looks limited for now, as risk sentiment seems to be waning gradually and dollar demand could pick up should investors fail to receive a fresh boost from the trade front. In the days to come, the major risk event for the pair comes on the form of the FOMC meeting minutes, and a less dovish tone could fuel USD demand and cap the euro’s bullish attempts.
USDJPY is challenging the 200-DMA at the start of the trading week but has yet to confirm a break above the 109.00 handle on a daily closing basis. Last week, the pair received support around 108.20 and shifted into a recovery mode since then as traders digest positive trade talks on the phase one deal. But to extend the local rally, the markets will need a fresh portion of bullish updates from this front. Otherwise, profit taking may send the pair down to recent lows.
Meanwhile, Brent crude has settled around the $63 handle, as traders struggle to push the prices further after a brief jump to the $63/60 area on Friday. The market remains afloat on this stage due to some optimism on the trade front but as investors have nearly digested the news already, Brent could resume the downside move in the short term as the market needs support from OPEC. The cartel doesn’t show any willingness to deliver deeper cuts in production to support the market, which bothers investors amid the ongoing concerns over the global demand due to the lingering trade uncertainty. Rising US oil production and inventories add to market worries, capping the bullish sentiment as well.
Nathan Lambert, Head of Global FX Analytical Department