European stock markets climbed to 11-week highs on Tuesday, extending yesterday’s gains amid widespread investor optimism. The sentiment is lifted by vaccine hopes, expectations of economic recovery following the coronavirus pandemic, and market bullishness over the stimulus measures taken by global central banks. Spain’s decision to let in foreign visitors fueled a rally in travel stocks.
U.K. Prime Minister Boris Johnson announced the reopening of the retail sector while Japan is planning new stimulus measures as it reopens its economy these days. Meanwhile, the People’s Bank of China Governor Yi Gang reiterated the central bank would be flexible. Market sentiment was also boosted by the news that a trial was starting for a COVID-19 vaccine from Novavax.
Against this backdrop, the UK’s FTSE 100 gains 1.32% to 6,072. Italy’s FTSE MIB edges higher by 1.12 percent to 17,792, France’s CAC 40 rises by 1.20 percent to 4,594, while German DAX 30 gains 0.63 percent to 11,463. U.S. stock index futures are set to open with solid gains as investors shrug-off the rising US-China trade tensions and focus on recovery prospects instead.
In currencies, the dollar is on the defensive against risky currencies, reflecting the broad-based market optimism. As such, EURUSD extended gains to the 1.0970 area but retreated slightly since then and has settled around the 100-DMA that acts as the key immediate hurdle for bulls now. Despite the latest bounce, the euro remains vulnerable to downside risks as long as the prices stay below 1.10. Moreover, should dollar demand reemerge, the pair may retreat to the 50-DMA quickly.
GBPUSD exceeded the 1.23 handle and registered nearly two-week highs around 1.2325. The pair has settled above the 50-DMA but is yet to confirm a breakout on a daily basis. Apart from a weaker dollar, the cable is supported by comments from the BOE chief economist Andy Haldane who said the incoming data is a bit better than the central bank’s scenario. On the data front, UK May CBI retailing reported sales came in at -50 versus -65 expected. The release gave the additional boost to the pound.
Meanwhile, oil prices are mildly positive on the day, extending gains from yesterday. Oil prices are buoyed by comments from a Kremlin spokesperson who said the OPEC+ output cut deal is effective and it's helping to avoid a negative scenario on oil markets. The reports that Russian Energy Minister Alexander Novak is expected to discuss a possible extension of existing oil output cuts beyond June with the Russian oil companies also lifted prices. Still, Brent struggles to challenge the $37 handle as traders continue to express worries about the outlook for oil demand recovery.
Nathan Lambert, Head of Global FX Analytical Department