Following an aggressive sell-off in the previous session, European stock markets switched into a recovery mode on Tuesday despite the lingering concerns over a fast-spreading Covid mutation that was identified in Britain over the weekend, forcing the U.K. government to shut down London. The new virus has also been identified in Italy, Netherlands, Belgium, Denmark, and Australia, making investors worry about the outlook for the global economy. Furthermore, the U.K. and EU remain deadlocked over post-Brexit trade relations as the December 31 deadline approaches, with some issues being still unresolved.
On the data front, U.K. GDP grew by a record 16% in the third quarter versus an 18.8% decline in the previous quarter. The current account numbers for the third quarter came in at GBP-15.6 billion versus GBP-11 billion expected and GBP -2.8 billion prior. The total business investment arrived at 9.4% in the third quarter versus 8.8% previous and 8.8% expectations.
Against this backdrop, the UK FTSE 100 index gains 0.38% to 6,440, Italy’s FTSE MIB adds 1.18 percent to 21,663, France’s CAC 40 is up by 1.29% to 5,462, while the German DAX 30 rises by 1.33% to 13,422. US stock index futures are also attempting to stage a recovery during the European hours.
In currencies, the GBPUSD pair failed to capitalize on the upbeat UK GDP numbers, flirting with the 20-DMA that arrives around the 1.3400 handle that is in market focus now. If the cable managed to hold above this moving average on a daily closing basis, the short-term technical picture would improve somehow. In general, the safe-haven dollar demand dominates the markets today, limiting the recovery potential in the pair.
EURUSD has settled above the 1.2200 figure on Tuesday, trading under some downside pressure. Still, the common currency stays close to long-term highs while downside risks remain limited in the short term as the greenback is still on the defensive despite the recent recovery attempts amid risk aversion. Later today, the US economic data including the GDP numbers could affect short-term dynamics in USD-pairs. Upbeat figures could add to a better risk tone in the markets and thus put the greenback under some selling pressure.
In commodities, Brent crude has been under pressure since the start of the week while trying to stay above the $50 psychological level. New virus concerns will likely cap bullish attempts in the short term while bearish risks prevail at the moment. If the futures get back under the mentioned significant level, yesterday’s lows around $49.30 could come back into market focus. Later today, the API report could add to the downside pressure in the market if the numbers disappoint.
Nathan Lambert, Head of Global FX Analytical Department