European stocks suffered a decline at the open following a decent sell-off in Asia. However, investor sentiment has improved since then, and most leading regional indexes returned to the positive territory. The markets were partly supported by autos stocks amid encouraging earnings. On the other hand, the German IFO data disappointed and somehow capped the upside potential in Europe. As such, Italy’s FTSE MIB adds 1.66 per cent to 18,792, Britain’s FTSE 100 sheds 0.02 per cent to 6,961, France’s CAC 40 rises by 1.16 per cent to 5,010, while German DAX 30 adds 0.27 per cent to 11,222. US stock index futures point to a rebound after Dow’s 600-point drop overnight.
Meanwhile, US September preliminary durable goods orders increased by 0.8% vs. -1.5% expected, while the prior result was revised from 4.4% to 4.6%. On the other hand, capital goods orders non-defense ex air came out at -0.1% vs. the expected increase by 0.4%. There was no any knee-jerk USD reaction to the release despite the headline number came out much better than anticipated.
As expected, the ECB kept the monetary policy unchanged at today’s meeting, and the euro remained apathetic after the decision that was priced in. During his press-conference, Mario Draghi said that significant stimulus is still needed for inflation, while the incoming information is somewhat weaker than expected. At the same time, the central bank governor confirmed that risks to economic growth are still “broadly balanced’ and net asset purchases will continue until the end of the year. Draghi’s comments on the economy were rather neutral and even a bit optimistic, which fuelled euro demand and helped the EURUSD pair in a knee-jerk reaction. However, there were no any obvious “hawkish” signals from the regulator that could send the shares currency significantly higher. So the statement turned out rather neutral for the pair and hasn’t affected investor expectations on the ECB policy. As such, the euro will continue to monitor the developments in Italy and will remain vulnerable to losses amid political still high monetary policy divergence.
USDJPY has been crawling higher after two days of declines. The pair managed to stay above the important 112.00 support level after some attempts to break below it earlier this week. Now the immediate target for USD bulls comes at 112.70 but chances for a rise above this area are rather low at this stage as risk sentiment may yet deteriorate quickly and fuel safe-haven yen demand once again. So the downside risks are in place for the greenback, especially in anticipation of the US 3Q DGP report due tomorrow as the numbers could disappoint.
Crude oil market shifted to a recovery mode and regained the $76 handle after Brent received support marginally above the key $75 level. The corrective rebound is helped by the Saudi Energy Minister Khalid Al-Falih’s comments – he believes there could be a need for intervention to reduce oil stockpiles after increases in recent months. Market participants are cheering this statement after Falih’s recent hint at substantial increase in OPEC production in order to compensate for the consequences of Iranian sanctions. Brent has recovered to the $76.80 region and traders focus shifts to the $77 handle now. Some signs of risk sentiment improvement coupled with weaker dollar demand encourage buyers as well. However, the potential for a more sustainable ascent is rather limited at this stage as investors continue to weigh the possibility of increase in oil output by the US producers and OPEC exporters.
Gold is a bit lower for the day but the prices remain afloat in general due to s limited dollar demand. The recent buying pressure has ebbed as the risk-on environment reemerged. But considering a high instability in investor sentiment globally and the lingering concerns over Italy, trade wars, Brexit and global growth, we see a room for further recovery in the yellow metal, though the way north won’t be easy and smooth as the confidence in gold has not rebounded yet. Traders may use the local downside corrections as buying opportunities as long as the price stays above the $1200 figure.
Nathan Lambert, Head of Global FX Analytical Department