Despite strong economic data out of Eurozone, European equity markets turned lower on Thursday as investors continue to express recession worries. Following recent recovery, the U.S. yield curve flattened and then briefly inverted after the minutes from the latest meeting of the U.S. Federal Reserve’s Federal Open Market Committee showed that policymakers reiterated intentions that the central bank’s latest cut to interest rates was a so-called mid-cycle adjustment. Markets expected the Fed’s tone to be more dovish so a neutral rhetoric sparked fears that the regulator will not be aggressive in easing policy easing.
On the data front, Euro zone business growth improved in August, with services activity accelerated and manufacturing contracted at a slower pace. Eurozone PMI rose to 51.8 from 51.5 in July, exceeding expectations. UK August CBI retailing reported sales came at -49 versus -15 expected. The headline number plunged to its weakest level since December 2008 and is the second weakest reading on record, since 1983.
Meanwhile, Italy’s main opposition party said it was prepared to hold talks with the anti-establishment Five Star Movement over forming a government, while German finance ministry pointed to external risks for the Europe’s largest economy.
On the trade front, the Chinese commerce ministry said impact from US tariffs are overall manageable and expressed hope that the US will show sincerity. The officials also highlighted that despite US tariffs delay, any new tariff measures will lead to escalation and China will have to retaliate if Washington persists on the current course. As such, the comments didn’t provide any relief to a softer risk tone in global markets.
Against this backdrop, UK’s FTSE 100 sheds 0.58 per cent to 7162, Italy’s FTSE MIB gains 0.39 per cent to 20,928, France’s CAC 40 loses 0.34 per cent to 5,417, while German DAX 30 sheds 0.06 per cent to 11,794. US stock index futures erased earlier gains and turned slightly negative amid the dynamics in the US yield curve.
In currencies, the euro turned lower despite better-than-expected Eurozone data. The pair, which struggles to regain the 1.11 handle continues to show a bearish bias, with recovery attempts attract sellers. Such dynamics shows that traders are not ready to push the common currency higher amid growing political uncertainty in Italy and the expected stimulus package from the ECB in September. The pair is now close to challenging the 1.1060 local support, a break of which will open the way to lows around 1.1025 and then at 1.10.
Oil prices are trending cautiously higher for a fifth day in a row but on Thursday, Brent refrains from testing the $61 figure. A daily close above the $60 handle is needed for a confirmation of further gradual ascent, otherwise the futures could get back below $59. At this stage, considering the lingering trade-related uncertainty and recession worries, the upside potential in the market remains limited.
Nathan Lambert, Head of Global FX Analytical Department