European equity markets opened lower on Friday as risk sentiment deteriorated at the end of the week amid coronavirus-developments globally. China reported 103 new infections, its 11th day above 100 confirmed cases while the UK considers full closure of its borders as cases continue to rise. Meanwhile, the European Central Bank held interest rates steady on Thursday, as expected. Also, the central bank said it stands ready to act in light of the new restrictions. ECB President Christine Lagarde said the pandemic still poses serious risks to the regional economy.
On the data front, stricter coronavirus-related lockdowns triggered a decline in the Eurozone business activity in January, preliminary data showed today. In particular, Markit’s flash composite PMI dropped to 47.5 January from 49.1 in December. In the UK, manufacturing PMI missed estimates with 52.9 in January while services PMI contracted to 38.8 versus December’s final readout of 49.4 and 45.0 expected.
Against this backdrop, the FTSE 100 in London sheds 0.52% to 6,680, Italy’s FTSE MIB loses 2.00 percent to 21,980, France’s CAC 40 is down by 0.90% to 5,540, while the German DAX 30 declines by 0.72% to 13,806. US stock index futures point to a lower open following yesterday’s modest gains.
The downbeat UK preliminary PMIs put the GBP/USD pair under additional selling pressure. As a result, the prices dipped to the 1.3650 area, retreating from fresh long-term highs registered on Thursday just below the 1.3750 region. Despite the correction, the pound remains elevated, clinging to the upper end of the current trading range despite recovery attempts in the safe-haven dollar. In the short-term, sterling is also weighed down by indications of a prolonged lockdown in the UK, which means a further slowdown in the economic activity. Another factor that contributed to the offered tone surrounding the cable is a bounce in the greenback amid a pullback in global stocks. If the pressure intensifies any time soon, the pair could challenge the 1.3600 figure. However, it looks like the prices will manage to stay above this level for now.
In other markets, oil prices are edging lower on Friday amid a widespread risk aversion. Brent crude is nearing the $55 handle that acts as the immediate support following a rejection from this week’s highs around $56.60. The bearish correction is due to the resurgence of coronavirus infections in China. The world’s second-largest oil consumer tightened lockdowns and restrictions, intensifying concerns over weak demand. A stronger dollar is adding to the downbeat tone in the oil market. Later today, the EIA report could trigger a bounce in oil prices if the data points to a decline in US crude oil inventories.
Nathan Lambert, Head of Global FX Analytical Department