European stock markets are rising on Friday, as investors look ahead to a speech from US Federal Reserve Chairman Jerome Powell at a yearly central banking symposium in Jackson Hole later today. Market participants hope to hear clues about what the Fed would do next after a rate cut last month. If Powell continues to highlight that a rate cut in July was a “mid-cycle adjustment” and fails to express concerns over economic growth, such scenario would be negative for stocks as a neutral rhetoric will further adjust easing expectations.
Meanwhile, Italian President Sergio Mattarella said several parties had indicated that they need more time to work out a solution to the ongoing government crisis. The leader of the anti-establishment Five Star Movement Luigi di Maio said his party is working to avoid snap elections.
Against this backdrop, UK’s FTSE 100 gains 0.80 per cent to 7184, Italy’s FTSE MIB adds 0.12 per cent to 20,841, France’s CAC 40 rises by 0.43 per cent to 5,411, while German DAX 30 adds 0.32 per cent to 11,784. US stock index futures also gain ahead of pivotal Powell’s speech.
In currencies, EURUSD extends losses, challenging an important local support around 1.1060. The downside pressure on the common currency increased after yesterday’s hawkish comments by some Federal Reserve officials as they highlighted that is was not necessary to further ease policy at the current stage. Meanwhile, the ECB meeting minutes pointed to the upcoming stimulus package than can be delivered in September, to support the slowing economic growth in the region. Should Powell add to the upside pressure for the greenback, the pair may refresh lows in the short-term, with downside risks persist as long as the euro remains below the 100-DMA around 1.12.
GBPUSD jumped to fresh August highs yesterday as French President Emmanuel Macron expressed confidence that a solution could be found regarding the amended Brexit withdrawal agreement. However, at the same time, he highlighted that the backstop for the Ireland-Northern Ireland border is “indispensable.” The pound briefly rallied to 1.2270 and shows some bearish bias on Friday, though the pressure looks limited, with the pair remains above 1.22.
In commodities, Brent crude has accelerated the decline and now targets the $58 handle after the latest trade-related news. In particular, China wowed to raise import tariff rate on some US goods. Tariffs will range from 5% to 10% and will go into effect on 1 September and 15 December. Amid further escalation in the US-China trade tensions, oil prices could go even lower in the short term, along with stocks and other risky assets.
Nathan Lambert, Head of Global FX Analytical Department