After another sell-off on Wall Street, major indexes managed to trim losses overnight and turned marginally higher ahead of today’s session. As a result, European stock markets shrugged off recent weakness and have settled in the green territory on Tuesday. However, the recovery potential remains limited, as coronavirus-related concerns continue to keep investors on edge, with rising cases across the globe fueling worries about another major lockdown. According to the latest report, the UK is reimposing some restrictions as the country faces a second wave of infections. On the positive side, Ifo lifted its 2020 German GDP forecast to -5.2% from -6.7% previously.
Meanwhile, banking stocks continue to lose ground after a plunge witnessed on Monday. Shares in Deutsche Bank fell 0.5%, while HSBC shed 0.8% earlier in the session, extending the declines from the previous day that contributed to Monday's losses in major indexes amid allegations of possible money laundering by several large banks. However, stocks in the sector managed to erase nearly all earlier losses amid a broader recovery in the regional markets.
On the Brexit front, European Commission said it will use a 'no-deal' Brexit scenario as the basis to prepare its autumn forecast. BOE's Bailey highlighted that the central bank was watching Brexit developments very carefully. According to the latest news, EU's Barnier is reportedly heading to London for informal talks tomorrow.
Against this backdrop, the UK FTSE 100 index edges higher by 0.32% to 5,822, Italy’s FTSE MIB adds 1.18 percent to 19,015, France’s CAC 40 rises by 0.46 percent to 4,814, while German DAX 30 gains 1.11% to 12,680. U.S. stock index futures are cautiously higher before Fed Chair Jerome Powell and U.S. Treasury Secretary Steven Mnuchin speak later in the day at a Congressional panel. The Eurozone releases preliminary consumer confidence data for September late today.
In currencies, the dollar started to lose its bullish impetus as risky assets shifted into a recovery mode. As such, the euro turned flat after an earlier dip to fresh lows around 1.1720. GBPUSD entered the green territory after a bounce from the 100- and 200-DMAs while USDJPY resumed the decline but remains well above six-month lows registered around 104.00 on Monday. If risk sentiment continues to improve in the short term, the greenback could extend the retreat after yesterday’s rally amid risk aversion.
In commodities, oil prices have settled marginally above the opening levels after an earlier dip below $42. The oil market is now driven by the overall risk sentiment, so the resurgent selling pressure could send Brent lower again. From the technical point of view, the $40 handle is now back in market focus, as a break below it could trigger a more aggressive sell-off in the coming days. Later today, the API weekly report could affect short-term dynamics in the oil markets.
Nathan Lambert, Head of Global FX Analytical Department