Following four days of losses, European shares turned into a recovery mode on Friday after the World Health Organization eased fears over the coronavirus crisis in China. The organization decided not to declare the outbreak a public health emergency while China has imposed travel restrictions on a ninth city in a bid to contain the virus. Apart from this topic, fresh economic data out of the Eurozone came in relatively positive. While the business activity in the region remained weak, there were some improvementsб suggesting the fundamentals could show a more pronounced recovery down the road.
Against this backdrop, UK’s FTSE 100 rallies 1.56 per cent to 7,624, Italy’s FTSE MIB gains 1.44 per cent to 24,047, France’s CAC 40 rises by 1.16 per cent to 6,040, while German DAX 30 is up 1.51 per cent to 13,588. US stock index futures point to a higher open as the corporate earnings season shows strong results, this time from from American Express, while worries over the deadly coronavirus eased.
In currencies, the dollar gains across the board while the pound looks the weakest. GBPUSD rose after the official report pointed to better manufacturing data for January. But the pair retraced quickly as probably traders realized that the PMI index remained in the contraction zone anyway, arriving at 49. Also, traders are nervous ahead of next week’s Bank of England policy meeting, with the odds for a rate cut is 50-50. This uncertainty will likely continue to weigh on the sterling in the days to come. Technically, the pair needs to firmly regain the 1.31 handle in order to see the easing selling pressure in the short term. Earlier in the day, the pound registered more than two-week highs around 1.3170.
USDJPY meanwhile is making shallow recovery attempts after yesterday’s plunge to the 109.25 region. The pair has been challenging the 109.50 area as risk sentiment has improved somewhat. Still, the upside bias is too modest to bet on a more sustainable recovery in the near term, as investors remain cautious and risk aversion could reemerge at any point should any negative headlines from Asia appear. As long as the dollar remains above the 109.00 handle, downside risks are limited.
In commodities, Brent crude keeps bleeding since the start of the week and is now threatening the early-December highs registered yesterday around $61.25. The futures need to hold above the $61 handle in order to avoid a more aggressive sell-off. Otherwise, traders could send the prices back to the $60 psychological level. Strong dollar weighs on the oil market today, as well as the remaining oversupply concerns and worries about demand in the context of a China virus.
Nathan Lambert, Head of Global FX Analytical Department