Despite investor enthusiasm in the global financial markets has abated after an aggressive rally yesterday, European stocks are mostly higher, in part due to better than expected PMIs from France, Germany and euro zone. At the same time, escalating tensions between Washington and Iran give investors reason to be cautious. By the way, there is some relief on this front as after the initial approval for the military to launch strikes on Iran, Trump pulled back at the last minute. In general, softening stance by major global central banks – ECB, Fed and Bank of Japan – continue to underpin stocks around the world.
Against this backdrop, the UK’s FTSE 100 adds 0.12 per cent to 7433, Italy’s FTSE MIB gains 0.10 per cent to 21,383, France’s CAC 40 rises by 0.10 percent to 5,541, while German DAX 30 sheds 0.09 per cent to 12,343. US stock index futures are slightly lower from recent highs as tensions over Iran weigh.
The dollar is mixed on Friday, with EURUSD extends the rally, trying to hold above the 1.13 handle. Apart from waning dollar demand, the euro derives a local support from positive European economic data. IHS Markit’s Flash Composite PMI rose marginally to 52.1 this month from a final May reading of 51.8, beating the median expectation for 51.8. Indices in Germany and France, remained weak but surprised on the upside, which added to the positive sentiment around the common currency.
Also, the dollar recovery attempts are capped by latest comments from Fed’s Bullard who said that factors behind weak inflation unlikely to be transitory and confirmed that rate cut was most appropriate option during the latest meeting. From the technical point of view, EURUSD needs to confirm a break above the 1.13 barrier. Otherwise, some profit-taking may follow ahead of the weekend.
Brent crude targets the $65 figure after a break above the $64 handle. Traders are pricing in further escalation in the US-Iran tensions and expect supply disruptions as a result. Against this backdrop, concerns over the gloomy outlook for the global economy are abating, at least, for the time being. In a wider picture, oil prices derive support from a dovish shift by major central banks. A softer stance from monetary authorities fuels expectations of reviving economic growth and a more robust oil demand. Technically, Brent could face resistance around $65 and trim gains but in the weekly charts, the futures will likely close in the green today.
Gold prices are easing after a spike above $1,400 for the first time in nearly six years. The rising possibility of a rate cut by the Fed fuels demand for the precious metal, which shows some overbought signs and could correct lower as a result. O the longer term, the rise could be sustainable as the greenback will likely be hit further by a shift in the Federal Reserve policy. To extend the current rally, the bullion needs to settle firmly above $1,400.
Nathan Lambert, Head of Global FX Analytical Department