European stocks turned mixed on Thursday amid further evidence of slowing growth in the region, weak corporate earnings reports, and waning optimism over the US-China trade deal due to a lack of details from the ongoing negotiations in Washington. The flash manufacturing PMI slipped to 49.2 in February. This is lowest level since mid-2013 and substantially below the 50 level that separates growth and contraction. Further signs of economic weakness in the euro zone could derail investor confidence even as the trade-related headlines come as positive.
Against this backdrop, Britain’s FTSE 100 sheds 0.77 per cent to 7,172, France’s CAC 40 is up just 0.05% to 5,198, while German DAX 30 rises by 0.29 per cent to 11,435. US stock index futures are trading marginally higher in early pre-market trade. The FOMC meeting minutes released yesterday was rather neutral. The Federal Reserve said that its shift to a more dovish and patient stance was due to the rising uncertainty. At the same time, the central bank leaves resuming rate hikes on the table as the domestic economy continues to grow at a solid pace. The dollar rose after the release but resumed the decline on Thursday as the overall demand for the US currency seems to be abating for now. In his recent comments, Fed’s Bullard said that rate normalization is coming to an end, the Fed is in a very good place, and there is no urgency to act. He also called the rates high in comparison to the current global environment. Such comments put the greenback under some additional pressure, though in general, there was nothing new in his statements.
EURUSD resumed the ascent after an earlier retreat on mixed PMIs. The pair managed to hold above the 1.13 figure and turned positive on the day. The 1.1350 area continues to cap the upside impetus in the common currency even as the dollar appeal looks limited at this stage. The ECB meeting minutes showed that the officials expect that near-term growth momentum will likely be weaker than earlier expected. Monetary authorities also said that probability of recession is low, but levels of uncertainty are high. USDJPY remains in a familiar range, being unable to challenge the 111.00 level that restrains the bullish potential since late-December. The current risk environment that looks mixed doesn’t suggest a more substantial ascent in the pair though it feels more comfortable lately. On the other hand, the upside potential is limited as long as the pair is trading below the 200- and 100-DMAs that come at 111.30 and 111.55 respectively. Only a break above these levels will open the way to a more robust rally.
Brent crude has settled around the $67 figure on Thursday. The prices lack directional impetus though show a modest bearish bias as the bulls seem to have taken a pause after a rally. Yesterday, the barrel rose to fresh November highs. After Saudi Arabia called on Nigeria to adhere to a deal to cut output, the country wowed to reduce its oil production to help lift prices. Meanwhile, OPEC’s crude oil production declined by nearly 1 million bpd in January, marking the lowest production for the cartel since March 2015. All this adds to the positive sentiment in the market. But the lingering concerns over global demand will likely continue to restrain the bullish potential unless the economic data turn better across the globe in the longer term.
Nathan Lambert, Head of Global FX Analytical Department