European stock markets are trading cautiously higher as investors are weighing the potential impact of rising tensions between Washington and Beijing over Hong Kong that cap market optimism over economic reopening. America is reportedly considering sanctions on Chinese firms and officials over the situation in Hong Kong while China reaffirmed it will take necessary countermeasures on foreign interference in Hong Kong.
On the positive side, the European Commission is reportedly to propose €750 billion in virus recovery fund to aid the member states. The next EU budget proposed by the European Commission will be worth €1.1 trillion and will include the coronavirus recovery fund. The ECB President Lagarde highlighted that there will be no new euro debt crisis after the pandemic. Meanwhile, ECB's de Guindos said the Eurozone economy will shrink between 8% and 12% this year.
Against this backdrop, the UK’s FTSE 100 gains 1.45% to 6,156. Italy’s FTSE MIB edges higher by 1.29 percent to 18,091, France’s CAC 40 rises by 1.72 percent to 4,685, while German DAX 30 gains 1.66 percent to 11,695. U.S. stock index futures are pointing to a positive open amid signs that economic activity is gathering steam.
In currencies, the dollar gave up early gains and turned negative again on Wednesday. As such, after a brief correction towards 1.0950, EURUSD resumed the ascent and rose to early-April highs around 1.1030, partly buoyed by a recovery in risk sentiment and the speculations about the European coronavirus recovery fund. A daily close above the 1.10 handle will confirm a breakout and could open the way to further gains if dollar demand stays subdued in the days to come.
Elsewhere, oil prices are under a mild selling pressure after yesterday’s rejection from fresh local highs above $37. Brent is slinging to the $36 handle, a break below which could bring additional downside impetus. At this stage, the short-tern technical picture looks neutral, and the general risk sentiment sets the tone for the oil market. Later today, a fresh API report on crude oil inventories in the United States could affect the short-term dynamics in oil prices. The key hurdle on the upside arrives at $37 while the immediate support comes around $35.80.
Nathan Lambert, Head of Global FX Analytical Department