Reflecting the mood in Asian stocks and US equity futures, European markets are trading higher on Monday as risk-on sentiment continues to improve. Investors are cheering stimulus measures from China and Germany. In particular, China’s central bank unveiled a key interest rate reform intended to lower borrowing costs for companies and support the struggling economy amid the ongoing trade war with the US. Meanwhile, German finance minister Olaf Scholz said that Germany has the fiscal strength to mitigate any future economic crisis with full force and hinted at the possibility of freeing up around 50 billion euros of extra spending. Additionally, the sentiment improves as US Treasury yields jump higher across the curve. 30-year yields are up by more than 6 bps on the day and trading close to 2.10%.
Against this backdrop, UK’s FTSE 100 adds 0.92 per cent to 7182, Italy’s FTSE MIB rises by 1.40 per cent to 20,606, France’s CAC 40 gains 0.85 per cent to 5,345, while German DAX 30 rises by 0.96 per cent to 11,673. US stock index futures are on the rise as well, with Dow may jump over 250 points as global stocks continue to erase losses from August sell-off.
The EURUSD pair is marginally higher on the day, with the price struggles around 1.11 as the dollar looks strong in general. Interestingly, the euro barely reacted both to weak Eurozone CPI data and dovish comments from a ECB official. In particular, Eurozone’s final reading of HICP for July was revised down from 1.1% to 1.0% y/y, which added to growing expectations for a very dovish ECB announcement in September. Meanwhile, the ECB governing council member Madis Muller said that a decision could come in September on further stimulus. In the short-term, the pair will likely continue to oscillate around 1.11, with the immediate support comes at 1.1060, while on the upside, the euro needs to overcome the 1.1225 area in order to get out of a consolidation pattern.
USDJPY meanwhile is rising for a third day in a row, with the price is challenging the near-term resistance around 106.60 amid a firmed greenback and souring yen demand amid higher US Treasury yields. Further dynamics in the pair will depend on risk sentiment, with a fresh wave of investor concerns could make the dollar struggle again as the yen remains a more attractive safe-haven currency. Technically, the pair needs to firmly get back above the 107.00 handle, with the prices struggle to regain since early-August.
Brent crude has settled around $58.50 after another failed attempt to regain the $9 local resistance. Earlier in the day, the market received a short-lived boost amid rising tensions in the Middle East after a weekend attack on a Saudi oil facility by Yemeni separatists. However, the gains were capped by a downbeat OPEC report that stoked concerns about growth in oil demand. On a slightly positive side, White House economic adviser Larry Kudlow said trade deputies from the US and China would speak within 10 days and could advance negotiations over ending a trade battle between the two countries if those talks pan out. Against this backdrop, oil prices will likely remain in a consolidation mode amid contradictory factors.
Nathan Lambert, Head of Global FX Analytical Department