Following the worst session in three months, European stock markets turned higher on Wednesday despite the Continent faces tighter economic restrictions due to rising cases of coronavirus. In yesterday’s remarks, Fed’s Powell said activity has picked up from its depressed second-quarter level. The comments furled a rally on Wall Street, with European equities following suit. The EU chief Brexit negotiator, Michel Barnier, confirmed they were determined to strike a Brexit deal, which added to the upbeat tone in the regional markets.
On the data front, the IHS Markit flash Eurozone manufacturing PMI rose to 53.7 from 51.7, while the services PMI dropped to 47.6 from 51.9 in September. GfK data showed German consumer sentiment is set to stabilize in October, after a dramatic fall in September. Spain revised its second-quarter GDP contraction to 17.8% quarter-on-quarter, up from the initial estimate of 18.5%.
Against this backdrop, the UK FTSE 100 index edges higher by 2.26% to 5,961, Italy’s FTSE MIB adds 1.22 percent to 19,147, France’s CAC 40 rises by 1.86 percent to 4,861, while German DAX 30 gains 1.62% to 12,798. U.S. stock index futures are higher on the session, looking to build on a bounce a day after the S&P 500 and Nasdaq Composite broke a four-day losing streak.
In currencies, the dollar pared earlier gains as risk sentiment has improved in Europe after mixed signals from Asia. EURUSD bounced from late-July lows around 1.1670 and is back around 1.17. Economic data out of the Eurozone were mixed and did little to support the common currency. Now, the market focus shifts to the upcoming US PMI data and another statement by the Federal Reserve Governor Powell due later today. Should risk sentiment continue to improve in the short term, the euro may turn 1.17 back into support.
Meanwhile, oil prices are little changed on the day after recovery from intraday lows around $41.70. Brent crude has settled marginally above the $42 handle but is yet to confirm a modest rebound on a daily closing basis. Oil market dynamics continues to depend on the overall investor sentiment, so should risk aversion reemerge, Brent may resume the decline and even challenge fresh local lows. Later today, the EIA weekly report could affect the short-term tone in the market.
Nathan Lambert, Head of Global FX Analytical Department