European markets are trading lower on Wednesday, as investors are closely monitoring the political developments globally. News of a bid from Democrats in the U.S. House of Representatives to impeach President Donald Trump spooked market participants, with the threat of a political crisis in the country fueled risk aversion across the board. The impeachment inquiry and follows concerns over Trump’s efforts to push Ukraine to investigate the family of Democratic presidential hopeful Joe Biden. Brexit uncertainty continues to unnerve European investors as well. U.K. Prime Minister Boris Johnson suffered a serious defeat after Britain’s Supreme Court ruled his decision to suspend Parliament weeks ahead of Brexit was unlawful. The minister disagreed with the verdict and said he would take the U.K. out of the EU by an October 31 deadline. As a result, he has faced increased calls from lawmakers to resign.
Against this backdrop, UK’s FTSE 100 sheds 0.42 per cent to 7260, Italy’s FTSE MIB loses 1.18 per cent to 21,642, France’s CAC 40 declines by 1.32 per cent to 5,553, while German DAX 30 sheds 0.99 per cent to 12,185. US stocks index futures are slightly lower, having recovered partially from early losses on the reports that Congress was moving to an impeachment enquiry against Trump. A vote by the House to impeach would be followed by a trial in the Senate.
In currencies, the greenback is rising against major rivals amid risk aversion. EURUSD dipped back below the 1.10 handle though holds above Monday lows around 1.0965. Apart from the news about Trump impeachment inquiry, the US Presidents’ tight rhetoric on China adds to the selling pressure on the risky assets including the euro. Yesterday’s German IFO survey came in better than expected but a wider economic picture still points to a recession in the Eurozone’s largest economy, and this curbs the appeal of the common currency as well. In the short term, the pair needs to hold above the 1.0960 local support in order to avoid a more aggressive downside pressure from USD bulls.
Oil market is also affected by Trump-related news. Tight comments on China increased the selling pressure in the market, with Brent lost over 3% on Tuesday. Today, the futures dipped to fresh lows around $60.45 and now threaten the $60 figure for the first time in two weeks. Trump criticized China's trade practices at the United National General Assembly and said he would not accept a bad deal in US-China trade negotiations. Moreover, the US leader also said he saw a path to peace with Iran even as he denounced Iran for "bloodlust", which in turn cooled risk premiums built into oil prices. The additional pressure in prices came from reports that Saudi Arabia was close to restoring all of its oil output capacity.
Nathan Lambert, Head of Global FX Analytical Department