After four sessions of losses, European markets are rising gently, with investors remain cautious amid Brexit uncertainty, concerns about a softening global economy and a potential U.S recession. U.S. 10-year Treasury yields recovered slightly after yesterday’s plunge to 2017 lows, while German 10-year bund yields remain negative, which unnerves market participants. Economic reports are also capping the optimism in the regional markets as German consumer morale deteriorated unexpectedly heading into April, which means household spending could deteriorate in the second quarter.
Against this backdrop, Britain’s FTSE 100 adds 0.26 percent to 7,196, France’s CAC 40 is up 0.71 percent to 5,297, while German DAX 30 gains 0.23 percent to 11,373. US stock index futures are edging higher on Tuesday morning as investors cheer some improvements in the bond market.
The dollar shows mixed dynamics today, with euro consolidates with a bullish bias, while the yen is on the defensive as risk sentiment has improved marginally. EURUSD reached a high of 1.1325 earlier in the day and slipped to the opening levels after the reports that Italy set to cut its 2019 GDP forecast. As a reminder, the current GDP growth forecast is just 0.6%. Further signs of a recession in the third largest euro zone economy could weigh on the common currency down the road should the incoming fundamentals disappoint further. The immediate task for the euro now is to stay above the 1.13 barrier, with daily close higher will open the way for further recovery after a Friday’s slump.
GBPUSD jumped back above the 1.32 barrier but lacks follow-through and retreated marginally from the 1.3250 region. The leading Brexiteer Jacob Rees-Mogg said that he may support Theresa May's deal rather than risk the UK staying in the EU. These comments helped to ease concerns ahead of the third vote in Parliament due tomorrow.
As a reminder, the House of Commons voted to seize control of the Brexit process from the government and enabled MPs to hold indicative votes on various options. Technically, the pair needs to confirm a break above 1.32 so that to target the 1.3275 resistance and then the levels above 1.33. Anyway, everything will depend on further Brexit developments.
Crude oil prices extend gains above the $67 figure on Tuesday amid OPEC supply cuts, US sanctions on Iran and Venezuela, and expectations of lower US inventories. It is expected that the API report due later today will show a decline in crude oil stockpiles by 2.4 million barrels. If so, it would be a third straight weekly decline, which should support the market in the days to come should the official report confirm lower inventories.
On the other hand, the lingering investor concern over the global economy continue to cap the optimism in the oil market as any signs of weakening global oil demand could spur a broad sell-off in commodities.
Nathan Lambert, Head of Global FX Analytical Department