European stock markets are trading slightly lower on Monday, as investors are cautious ahead of the annual World Economic Forum conference in Davos, where climate change and sustainable business will be a key focus for participants. Meanwhile, the People’s Bank of China kept its loan prime rate unchanged today, after the US and China signed a phase one trade deal last week, easing tensions between the world’s two largest economies. Meanwhile, finance ministers from EU member states gather in Brussels today for the monthly Eurogroup meeting, while British Prime Minister Boris Johnson hosted a summit for 21 African leaders in London.
Against this backdrop, UK’s FTSE 100 sheds 0.28 per cent to 7,652, Italy’s FTSE MIB loses 0.37 per cent to 24,051, France’s CAC 40 declines by 0.25 per cent to 6,085, while German DAX 30 rises by 0.08 per cent to 13,537. U.S. stock indices rose to fresh record highs on Friday, supported by upbeat economic data from the U.S. and China. U.S. markets will be closed on Monday for Martin Luther King Jr. Day.
In currencies, dollar is mostly higher across the board, as risk sentiment has deteriorated somehow again. Also, traders continue to digest the recent positive economic data out of the United States. As such, EURUSD failed to get back above the 1.11 handle earlier in the day despite German PPI came in higher than expected. The pair dipped to nearly one-month lows around 1.1080 and remains on the defensive ahead of ZEW survey due on Tuesday. Later in the week, the ECB policy meeting takes place. However, investors don’t expect any significant changes in the central bank’s tone and assessment of the economy and inflation. In the near term, the common currency needs to regain the mentioned 1.11 key barrier in order to see a softer selling pressure.
Meanwhile, Brent crude jumped to $65.70 early on Monday but had to retreat to $65 afterwards, from where the barrel managed to recover but still remained negative on the day. The initial rally was due to heightened geopolitical tensions in the Middle East, with concerns over supply disruptions in Iraq and Libya made investors nervous. But as worries have waned fairly quickly, Brent failed to extend the rise. Especially on the back of dollar strength. In the short term, prices will likely continue to consolidate around the $65 handle, which is the key for further direction. Once Brent confirms a firm break above this level, the technical picture will improve somehow.
Gold prices are nearly unchanged around $1,560 on Monday. The precious metal has settled in a tight range at the start of the week, with investors struggling for direction amid a lack of fresh news. The upside potential is capped by stronger dollar demand while mainly negative risk sentiment supports the prices. As a result, there is a short-term consolidation in the market at this stage. In the days to come, economic data out of the major countries may affect the bullion, as strong figures could improve the appeal if risky assets and thus cap the bulls’ efforts in the gold market.
Nathan Lambert, Head of Global FX Analytical Department