European stock markets continue to trade in a mixed manner on Tuesday amid contradictory signals from the trade front, though some signs of easing US-China tensions are capping the downside pressure after the initial sell-off that took place at the start of the trading week. Investors remain cautious after Washington and Beijing announced fresh mutual tariffs, with sentiment has improved somewhat after Trump said that Washington officials had been in touch with Beijing over reopening trade negotiations.
Meanwhile, the US and France have reached a compromise agreement on France’s digital tax. In Italy, the ruling Five Star Movement and the opposition Democratic Party came close to a deal to form a new government, after the PD said it had abandoned a veto on Giuseppe Conte serving another term as Prime Minister.
On the data front, the final Q2 German GDP came in line with expectations and the preliminary results, confirming contraction in the economy. Gross domestic product shrank 0.1% in the second quarter, reversing the first quarter's 0.4 percent expansion. GDP gained 0.4 percent year-on-year, but slower than the 0.9 percent growth registered in the first quarter. Meanwhile, exports decreased 1.3 percent on quarter, markedly more than the 0.3 percent drop in imports.
Against this backdrop, UK’s FTSE 100 declined by 0.21 per cent to 7080, Italy’s FTSE MIB adds 1.02 per cent to 20,888, France’s CAC 40 rises by 0.19 per cent to 5,361, while German DAX 30 adds 0.41 per cent to 11,702. US stock index futures are inching marginally lower as investors show skepticism over the unstable trade-related developments.
In currencies, the greenback is marginally lower on Tuesday, with EURUSD is making shallow recovery attempts after yesterday’s dip but remains close to the 1.11 handle. Increasing recession fears in Germany coupled with political instability in Italy continue to cap the upside potential in the pair. The common currency demand is also subdued due to the upcoming stimulus package from the ECB. Technically, the euro needs to get back above the 1.1160 local resistance in order to regain the 1.12 level. On the downside, the immediate support comes around 1.1060.
In commodities, Brent crude oil is trading just below the $59 handle as the dollar turned under some pressure and trade-related worries have somehow abated. Nevertheless, the market remains vulnerable to losses as the sentiment is still fragile in general, and another escalation in the US-China trade war may fuel another sell-off in risky assets including oil. As long as Brent remains below $60, the risk of retesting the lows below $66 persist.
Nathan Lambert, Head of Global FX Analytical Department