European stock markets continue to tumble on Wednesday, as the coronavirus outbreak further weighing on global investor sentiment after a top U.S. health official said the disease will likely become a global pandemic. China reported 406 new confirmed cases and an additional 52 deaths as of February 25. In Europe, Italy remains the key concern for the region with the virus now having spread south. The country has 325 confirmed cases of the virus and 12 people have died. Furthermore, new coronavirus cases have emerged across Europe, including Austria, Switzerland and Spain.
As for the data, French consumer confidence slightly exceeded expectations to remain stable in February at a reading of 104. In corporate news, shares of Danone rose 1% after the French group reported higher fourth-quarter sales and trimmed its guidance for 2020 organic sales growth. Rio Tinto stocks fell over 1% after the mining company reported a fall in annual profit and said it was preparing for short-term impacts such as supply-chain issues due to the virus.
Against this backdrop, UK’s FTSE 100 sheds 0.32 per cent to 6,994, Italy’s FTSE MIB recovers by 1.19 per cent to 23,372, France’s CAC 40 is down 0.59 per cent to 5,646, while German DAX 30 declines by 0.70 per cent to 12,701. U.S. stock index futures erased earlier losses and turned flat as stocks attempt to rebound from a deep two-day sell-off.
In currencies, the dollar turned higher after some hesitation earlier in the day. EURUSD briefly pierced the 1.09 handle but just attracted sellers on the recovery attempts ahead of Lagarde speech and Trump’s press conference on coronavirus. It is possible that the euro will see a more intense the downside pressure in the near term, as the safe-haven dollar demand starts to pick up again. From the technical point of view, the 1.09 figure remains in market focus, and only a decisive break above it will ease the selling pressure surrounding the common currency despite the recent recovery.
Meanwhile, oil prices extend losses for a fifth consecutive day on Wednesday, with Brent changing hands near 13-month lows marginally above the $53 handle. Oil traders continue to price in an even more gloomy outlook for global oil demand amid the spread of the coronavirus both in China and outside. Still, should investor sentiment improve any time soon, Brent crude may reclaim the upside momentum. Still, the bullish potential will likely remain limited anyway, at least in the short term. later today, the EIA weekly inventory report will come into market focus.
Nathan Lambert, Head of Global FX Analytical Department