Despite the lingering concerns over US-China trade talks, European markets rallied on Tuesday, driven by hopes that the two countries will finally manage to strike a deal, at least a partial one. It looks like that European investors showed a more positive reaction to the latest signals from the US and China that Asian markets, with the pan-European Stoxx 600 reached the highest level for over four years. In individual stocks, Easyjet shares jumped more than 2.5% after the initial 4.5%-rally after the annual results of the company came in line with its guidance. Cobham’s stocks rose by 3.75% as investors cheered the news that a takeover deal for the firm was approved. Meanwhile, Intermediate Capital stocks gained over 6.5% amid a rise in its first-half profits. <.p>
Against this backdrop, UK’s FTSE 100 adds 1.14 per cent to 7391, Italy’s FTSE MIB gains 0.34 per cent to 23,542, France’s CAC 40 rises by 0.29 per cent to 5,947, and German DAX 30 rallies by 0.97 per cent to 13,335. Meanwhile, US stocks index futures were slightly higher initially but turned flat-to-negative before the open as risk sentiment seems to be waning again.
EURUSD struggles for direction on Tuesday, with the pair was rejected from daily lows around 1.1060 earlier and turned marginally positive. Despite the prices stay above the 1/1050 support area, the upside potential still looks limited, as doubts in striking a trade deal are still there. It looks like the euro will stay in a consolidation mode until a fresh driver sets a clearer direction for the common currency.
On the data front, Eurozone current account surplus came in at EUR 28 billion in September, compared to EUR 29 billion a month earlier. Meanwhile, construction output in the region rose for the first time in three months, by 0.7% in September after a fall by 0.8% fall in the previous month. However, the reports failed to affect the pair substantially, with the overall sentiment around the greenback and trade continues to set the tone for the euro. The next important risk event for EURUSD is the FOMC meeting minutes due on Wednesday.
In commodities, oil prices struggle to regain the upside momentum after yesterday’s rejection from the levels above the $62 handle. The market seems to be more sensitive to trade uncertainty than stocks and financial markets in general. Limited progress in the US-China negotiations continues to make investors worried about the outlook for the global economy which in turn affects oil demand prospects. In the near term, traders will partially shift focus to the upcoming API and EIA weekly data, with further rise in crude oil inventories in the US could add to the selling pressure in the market. As such, Brent may struggle to hold above the 100-DMA around $61.30 in the days to come.
Nathan Lambert, Head of Global FX Analytical Department