Following mixed dynamics earlier in the day, European stock markets turned slightly lower, as investors continue to fret about the coronavirus theme after China’s National Health Commission reported an additional 114 deaths from the virus, and 394 new confirmed cases. Despite a slowdown in the spread of the virus in mainland China, markets remain unnerved by the potential economic consequences from the outbreak. In the positive side, China lowered its benchmark lending rates to mitigate the economic impact of the coronavirus.
On the data front, UK retail sales rose 0.9% in January, better than 0.7% expected while the December reading was revised to a drop of 0.5% against 0.6% originally reported. Annually, sales were up 0.8%. Excluding fuel, the rise was 1.6% monthly and 1.2% yearly. In its latest meeting minutes, the ECB said that the latest data point to a positive but modest growth ahead and the central bank needs more data to see if tentative signs of stabilization provide a firmer ground for optimism. Monetary authorities also pointed to a continued gradual upward trend in some core inflation indicators but highlighted that it is important to acknowledge positive signs without being too optimistic. Besides, the ECB expressed concerns about rising stock prices not reflecting improved earnings.
Against this backdrop, UK’s FTSE 100 sheds just 0.01 per cent to 7,456, Italy’s FTSE MIB losses 0.74 per cent to 25,290, France’s CAC 40 is down 0.22 per cent to 6,098, while German DAX 30 declines by 0.19 per cent to 13,762. U.S. stock index futures point to a slightly lower open after a record-setting session after S&P Global Ratings warned that Chinese lenders could be hit by as much as $1.1 trillion in questionable loans due to coronavirus while Goldman warned that markets are underestimating the potential fallout from the outbreak.
In currencies, the greenback continues to extend gains against the majors, with EURUSD remaining below 1.08 after a dip to fresh three-year lows earlier in the day. The common currency continues to suffer from dismal economic signals out of the Eurozone while in the near term, the selling pressure has intensified following dovish comments from a ECB official. De Guindos said that the euro area economy still needs strong support from monetary policy and stated that they are attentive to the possible side effects of the present monetary policy measures. Despite the statement failed to have an outright negative impact on the common currency, it adds to the signals that the central bank may need to take additional measures at some point to support the regional economy that shows more and more signs of weakness lately.
Meanwhile, Brent crude failed to challenge the $59.70 area on the way to the $60 psychological level. Still, the prices remain elevated, pointing to a general bullish sentiment in the market. In the short-term charts, the futures lack the directional impetus amid mixed risk sentiment in the global financial markets. Also, strong dollar caps further upside in the market as the USD index has been approaching the 100.00 psychological hurdle. On the positive side, Brent is supported by supply threats due to a situation in Libya and the US sanctions on a subsidiary of Russian state oil major Rosneft. As such, the prices will likely retain the upbeat tone in the near term.
Nathan Lambert, Head of Global FX Analytical Department