European markets extended gains after the ECB left key rates unchanged during today’s monetary policy meeting and delivered a dovish message. In the accompanying statement, the central bank hinted that rate cuts are and renewed bond purchases are coming. The regulator said that "Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020”. As such, the central bank added the “or lower” to its statement. Despite the ECB didn’t cut rates, adjustment to the forward guidance and mentioning of further easing measures was dovish enough to inspire stocks and put the additional pressure on the greenback.
In individual stocks, Britain’s Cobham surged nearly 35% after U.S. private equity firm Advent International agreed to buy the company for $5 billion. Unilever shares slipped more than 1% after the company reported weaker than expected sales growth. Against this backdrop, the UK’s FTSE 100 adds 0.43 per cent to 7534, Italy’s FTSE MIB gains 0.95 per cent to 22,290, France’s CAC 40 rises by 0.95 per cent to 5,659, while German DAX 30 adds 0.41 per cent to 12,573. US stock index futures also gain after the ECB decision and ahead of earnings from Comcast, American Airlines, Dow, Amazon, Starbucks and Alphabet.
After the initial bullish reaction, the euro turned even lower as traders digest the upcoming rate cut in September. EURUSD slipped to fresh lows at the 1.11 handle. European bond yields crashed to record lows after uber-dovish ECB, which added to the negative sentiment surrounding the common currency.
On the data front, US June preliminary wholesale inventories came at +0.2% versus +0.5% m/m expected, while durable goods orders rose by 2.0% versus 0.7% expected and -2.3% in the previous month. Advanced goods trade balance for June came in at -$74.17 billion versus -$72.5 billion estimate.
Brent crude is grinding gradually higher on Thursday as the local selling pressure has eased since yesterday. The prices registered daily highs around $64, erasing losses from the previous day. Along with other riskier assets, Brent derived support from a soft rhetoric by the ECB, with traders will soon start to switch to the FOMC meeting due next week. A rate cut by the Fed should revive risk demand further. However, gains remain capped as investors continue to express concerns over global growth, especially after another portion of dismal economic data from major countries. As such, Brent will hardly be able to challenge the $64.60 area in the near term, while downside risks still persist.
Nathan Lambert, Head of Global FX Analytical Department