European markets are trading higher on Tuesday, as investors braced for the result of the Conservative Party leadership contest. In a widely expected outcome, Boris Johnson became the new leader of the Conservative Party, receiving 92,513 of Tory votes to beat Jeremy Hunt, who received 46,566 votes. In general, markets continue to receive support from expectations that the European Central Bank and the Federal Reserve could soon cut interest rates. In individual companies, BMW shares climbed 4.5% after Morgan Stanley upgraded its stock. Meanwhile, Apple supplier AMS stock rose nearly 5% after stronger-than-expected revenues and optimistic guidance for the third quarter of 2019.
Against this backdrop, the UK’s FTSE 100 adds 0.98 per cent to 7588, Italy’s FTSE MIB gains 0.84 per cent to 21,918, France’s CAC 40 rises by 1.02 per cent to 5,623, while German DAX 30 adds 1.75 per cent to 12,500. US stock index futures are on the rise as earnings season picks up steam, with Dow set to jump nearly 100 points at the open after better-than-expected earnings from Coca-Cola. Shares of Coca-Cola traded 1.9% higher after the beverage giant reported fiscal second-quarter net income of $2.61 billion, or 61 cents per share, up from $2.32 billion, or 54 cents per share, a year earlier.
As for the currencies, the greenback is higher across the board as markets continue to shift focus from the latest speculations about the Fed policy tightening to the upcoming ECB meeting which is expected to be dovish. As such, the selling pressure on the euro has intensified and the EURUSD pair slipped below the 1.12 handle to register early-June lows around 1.1167. The additional support for the dollar came from a strong low-tier indicator. Philly Fed July non-manufacturing index came at 21.4 versus 8.2 in the previous month. The component of new orders came at 25.5 versus 14.3.
Oil prices struggle to attract a sustained demand once again, with Brent retreated to the negative territory after it failed to confirm a break above $63. Despite the geopolitical tensions, Brent remains in check amid growth of the US oil supply and the lack of progress in resolving the US-China trade dispute. By the way, the negotiations between the two world’s largest economies may resume next week but riskier assets including oil will derive support from this front only in case of some meaningful progress in relations. In the near term, the API report will be in focus, with another reduction in crude oil inventories could send Brent back above the $63 handle.
Nathan Lambert, Head of Global FX Analytical Department