European stock markets turned higher on Tuesday after yesterday’s declines, with oil stocks lead the gains amid the fresh four-year highs in Brent prices. Next shares jumped over 8 per cent as the retailer reported a 0.5 percent increase in first-half profit and lifted its guidance for the year, citing better-than-expected trading August and September. Optimism over the Italian budget also helps to keep the sentiment bullish. On the other hand, the never-ending trade conflict between the US and China caps the upside potential in stocks globally. Earlier in the day, China said that talks with the US cannot take place under threats and pressure. Meanwhile, the White House director of the National Trade Council Peter Navarro highlighted that Trump will add tariffs if China retaliates. As such, Britain’s FTSE 100 adds 0.54 per cent to 7,498, France’s CAC 40 gains 0.21 per cent to 5,487, while German DAX 30 rises by 0.28 per cent as well, to 12,385. US stock index futures climb as energy companies gained due to oil market rally and bank stocks got a lift from higher interest rates.
EURUSD has resumed the ascent today after a correction from mid-June highs above 1.18 reached yesterday. The pair however struggles to gain a more robust upside momentum, capped by the levels just below the mentioned barrier after the ECB chief economist Peter Praet told the market that Draghi's comments were not anything new. Yesterday, the central bank governor pointed to the prospects of a substantial acceleration of the underlying inflation and fuelled a short-term rally in the pair. On the other hand, the positive tone in EURUSD is supported by some optimism over the budget plan in Italy amid signs that the coalition government was likely to reach a compromise over the 2019 budget. So this factor coupled with the general weakness in the greenback point to a positive short term picture in the pair. However, the FOMC meeting results due tomorrow could change the price action. By the way, as the rate hike is priced in, the dollar could get under additional pressure in a “buy the rumor, sell the fact” play. Technically, the euro could challenge the 1.18 resistance once again, with the next immediate target at 1.1820.
Crude oil markets are on the rise. After yesterday’s jump above $80, Brent refreshed four-year lows around $80.50 on Tuesday. The market cheers the OPEC+ decision not to increase production further and its commitment to maintaining the 100% compliance to the initial deal. This step helped to increase market worries over the potential supply shortfall in the global markets amid the declining exports from Iran and Venezuela. Further support to prices comes from the “Iranian factor” which seems to be escalating as Trump ruled out meeting with Iran’s president Rouhani. It means that the US leader is showing no signs of letting up, and the sanctions on the country’s oil exports are due to take effect in November, as was announced earlier. The rally in prices has slowed down recently, and Brent is now changing hands barely above the $81 figure. Should today’s API report point to a substantial increase in crude oil inventories, the release could serve as a catalyst for profit-taking at attractive levels. However, the general sentiment remains firmly positive as long as the price keeps above $79.
Gold prices are making further recovery attempts that still look shallow and unimpressive as the downside pressure on the buck is limited. The yellow metal is testing the $1,200 figure, a daily close above which is needed to open the way to further corrective rebound. In general, the picture remains rather weak as the precious metal still needs a much stronger selling pressure on the greenback to stage a more sustainable rise. Should tomorrow’s FOMC meeting results disappoint, the bullion could get back above the $1,212-$1,214 region.
Nathan Lambert, Head of Global FX Analytical Department