After a massive sell-off on Wall-Street and further slide in Asia, European stock markets mainly continue to grind lower on Tuesday amid the increasing concerns over global growth following a slew of dismal economic reports from major economies. As such, today’s German IFO data came in lower than expected and this confirmed that the euro zone economy continues to lose its steam. During mid-trading, the major indexes are making some recovery attempts though. German DAX 30 rebounds by 0.26% to 10,800, Italy’s FTSE MIB now adds 0.24 per cent to 18,738, Britain’s FTSE 100 declines by 0.49 per cent to 6,740, while France’s CAC 40 slips by a mere 0.08 per cent to 4,795. US stock index futures point marginally higher after yesterday’s slump.
The greenback is back under the intense selling pressure as traders further price in a more ‘dovish’ rhetoric by the Fed tomorrow. The decline in the 10-year US Treasury yields to late-August lows adds to the negative sentiment around the dollar. USDJPY has been drifting lower for a third day in a row and threatens the 112.00 figure for the first time since late October. The Japanese yen regained its attractiveness as a safe-haven currency, which increases the bearish pressure on the buck. Despite the oversold conditions, the pair could continue to move south in the short term as traders tend to exit long USD positions ahead of the crucial FOMC meeting.
EURUSD spiked to one-week highs around 1.14 amid the general dollar weakness. By the way, the euro shrugged off another disappointing economic report from Germany as traders are focused on the Fed and expect a pessimistic tone from the Federal Reserve on future rate path. As for the developments around Italy, the uncertainty remains on this front despite the ongoing talks. In particular, the European Commission has asked Italy for a further EUR 2.5 billion – EUR 3 billion in savings before approving the country’s 2019 budget. The country’s government in turn opposed further cuts citing unwillingness to cut the deficit target below the revised 2.04%. This factor will likely continue to cap the euro’s upside potential until the situation is resolved.
Crude oil prices refreshed 14-month lows on Tuesday. Brent slipped to $57.19 where it found support and recovered above $58 but remains under a general pressure. The market is getting more and more concerned over the global demand amid the increasing signs of slowing economic growth in major countries. Additionally, traders continue to expect further rise in the US shale production activity. Another source of the ongoing bearishness in the market is the fact that investors don’t think the renewed OPEC+ deal will eventually help to balance the global market as oversupply is expected to prevail next year. In such an environment, despite the oversold conditions, Brent may continue to nurse losses in the short term unless a major OPEC producer decides to cap the current rout and sends aт encouraging signal to the market.
Gold prices spiked north on Monday and continue to gain momentum today amid the weaker dollar. The risk-off sentiment adds to the metal’s appeal. The prices extended gains to the $1,250 area, where the last week’s rally as capped. The bullion was later rejected from this level, but this time, it may challenge the area of mid-year highs as the buck could further lose its attractiveness should the Fed deliver a so-called ‘dovish’ hike on Wednesday. In the short term however, a partial profit-taking could take place.
Nathan Lambert, Head of Global FX Analytical Department