European stock markets turned sharply lower on Monday as investors digest the reports about a collapse of a British tour operator Thomas Cook. The company failed to secure a rescue package from its lenders, and its bankruptсy has put 22,000 jobs at risk worldwide. Amid the news, travel and leisure stocks are trading marginally higher today.
Meanwhile, economic concerns in the region intensified after survey data showed that German private sector activity shrank for the first time in six-and-a-half years in September. The manufacturing PMI came in at 41.4, which is the lowest gauge of factory sentiment for more than a decade. Markit’s flash reading of composite German PMI came in at 49.1 in September, down from 51.7 in the previous month. Dismal figures stoke recession worries in the Europe’s largest economy, which made stocks tumble.
As for the trade, there are conflicting signals from this front. U.S. Trade Representative’s office described the two days of talks with China as productive, while the Chinese agriculture delegation canceled a planned visit to US farm states. The high-level trade negotiations are set to resume early October.
Against this backdrop, UK’s FTSE 100 sheds 0.53 per cent to 7305, Italy’s FTSE MIB declines by 1.11 per cent to 21,877, France’s CAC 40 loses 0.87 per cent to 5,641, while German DAX 30 falls 0.98 per cent to 12,345. US stock index futures are slightly lower on Monday morning.
The greenback is appreciating against the European counterparts and losing ground against the Japanese yen as risk-off sentiment picks up steam amid geopolitical concerns in the Middle East and lack of progress in the US-China trade talks. EURUSD accelerated the decline after weak economic data, which raise the possibility of additional stimulus from the ECB while the Federal Reserve hinted last week that further interest rate cuts in 2019 are not warranted. The pair failed to cling to the 1.10 figure and had to retreat, making nine-day lows around 1.0965. Should the euro fail to stay above 1.0960, further losses could be in the cards. Once above 1.10, the selling pressure will ease somehow but a wider picture still points to the persisting downside risks.
Oil prices turned lower after earlier bullish attempts, with Brent failed to stay above the $65 handle and slipped to the $62.50 area amid the reports that Saudi oil production to be restored by next week. The news from the kingdom remain the key driver for the volatile oil markets for now, while geopolitical uncertainty in the Middle East serves as a ‘cushion’ for the futures. While the possibility of a break below the $60 handle is rather low at the moment, further positive news from Saudi Arabia could potentially increase the bearish pressure in the market. The near term technical picture will improve once Brent comes back above the $64 barrier, where the 200-DMA lies.
Nathan Lambert, Head of Global FX Analytical Department