European stock indices started the week on a downbeat note, taking cues from Asian markets and US stock index futures, with the Dow shedding around 1% early Monday while oil prices trimmed losses but stayed on the defensive, adding to the negative and cautious tone among investors. New restrictions in Europe, rising coronavirus cases, and stalled US stimulus talks are among the reasons behind the bearish sentiment in the markets.
Also on the negative side, the Irish consumer confidence index for October declined sharply to 52.6, from 60.7 earlier. While in Germany, business morale fell for the first time in six months in October, the Ifo survey showed on Monday. The business climate index fell to 92.7 from a downwardly revised 93.2 in September versus 93.0 expected.
By the way, British consumer confidence also fell for the first time in six months, weighed down by concerns about rising coronavirus infection rates. Meanwhile, Bundesbank confirmed that German economic recovery continuing at a much slower pace, with a rise in virus infections, coupled with restrictions, hitting the services industry.
Against this backdrop, the UK FTSE 100 index sheds 0.19% to 5,848, Italy’s FTSE MIB loses 0.63 percent to 19,163, France’s CAC 40 edges lower by 0.61 percent to 4,879, while the German DAX 30 plunges by 2.32% to 12,352. U.S. stock index futures are losing ground, pointing to a decline in the US stock markets after the opening bell after Congress and the White House failed to agree on a much-anticipated fiscal stimulus deal.
In currencies, the dollar is mixed-to-higher on Monday as risk-off sentiment prevails in the market. EURUSD slipped to the 1.18 handle but managed to stage a bounce afterward and trimmed intraday losses after a knee-jerk bearish reaction to the Ifo survey earlier during the European hours. Rising coronavirus infections and the renewed restrictions in several countries keep the common currency on the defensive at the start of the week. on the other hand, bearish risks are limited as long as the pair stays above the ascending 20-DMA, at 1.1770 today.
Meanwhile, oil prices trimmed intraday losses after the initial drop to early-October lows below $41 but still stay on the defensive, struggling around the 200-DMA ahead of the opening bell on Wall Street. The market is pressured by the reports about rising production in Libya coupled with virus-related developments that continue to damp demand recovery expectations. If the pressure intensifies in the short term, the $40 handle could be challenged. In this scenario, the technical picture for Brent will deteriorate further. On the upside, the initial resistance now arrives at $41.70, followed by the $42 barrier.
Nathan Lambert, Head of Global FX Analytical Department