European stocks are trading higher on Thursday, after the U.S. Federal Reserve cut interest rates as expected and the Bank of England held its rates steady but also warned that another delay to Britain’s departure date could lead to further economic weakness, which means the possibility of delivering stimulus in the future persists.
In other news, White House economic adviser Larry Kudlow said that there has been a softening in the mood in talks between US and China officials ahead of next month's high-level talks in Washington. Earlier, US Vice President Mike Pence also noted that atmospherics on China were improving. The comments helped to improve investor sentiment, while tensions in the Middle East persist as US President Donald Trump promised details of new sanctions soon in response to a missile or drone attack on Saudi oil facilities that Riyadh has blamed on Iran.
Against this backdrop, UK’s FTSE 100 adds 0.57 per cent to 7355, Italy’s FTSE MIB rises by 0.75 per cent to 22,112, France’s CAC 40 adds 0.63 per cent to 5,655, while German DAX 30 gains 0.47 per cent to 12,447. US stock index futures are mostly lower on Thursday, as the federal Reserve delivered a widely expected rate cut but but played down hopes of further monetary easing.
On the data front, the U.K. inflation fell to its lowest level in nearly three years. The annual rate dipped to 1.7% last month, after an increase of 2.1% in July, taking inflation down to its weakest level since December 2016. GBPUSD dipped to daily lows below 1.2450 but bounced quickly and turned positive on the day as the Bank of England refrained from outright dovish surprises. By the way, the central bank forecasts were slightly downgraded: their UK GDP projections - to 0.2% from 0.3% in the August report, while the BoE also sees inflation remaining below the 2% target throughout the remainder of the year. In the short term, the pair needs to make a clear break above the 100-DMA around 1.25 in order to take a firmer upside course.
Oil prices jumped to $65.55 but failed to preserve the bullish momentum and retreated back towards $64.50. A brief spike was due to speculations that Saudi Arabia has asked Iraq’s state organization for marketing of oil for as much as 20 million barrels of crude to supply Saudi’s domestic refineries. However, due to lack of official confirmation of the message, the rally faded quickly. In general, volatility in the oil market remains elevated amid the lingering uncertainty over the potential recovery in the Saudi oil production. The immediate support now comes around $63, while local resistance lies at $65.50.
Nathan Lambert, Head of Global FX Analytical Department