European markets extend gains on Friday on hopes for monetary policy stimulus and progress in the upcoming US-China trade talks. Negotiators on both sides are set to meet in Washington, on October 10. On the other hand, escalating political uncertainty in the United States caps gains in the markets. In regional news, Bank of England Monetary Policy Committee member Michael Saunders said it is “quite plausible” that the central bank’s next move is a rate cut even if the U.K. government reaches an agreement with the European Union over departing. The statement sent the pound lower and in turn supported the FTSE 100 index.
Against this backdrop, UK’s FTSE 100 adds 0.84 per cent to 7412, Italy’s FTSE MIB gains just 0.01 per cent to 21,950, France’s CAC 40 rises by 0.15 per cent to 5,628, while German DAX 30 gains 0.80 per cent to 12,387. US stocks index futures post moderate gains on Friday, awaiting further trade- related and political developments.
In currencies, another portion of weak European data sent EURUSD to fresh two-year lows marginally above the 1.09 handle which served as a support level. A wider picture still points to the downside risks for the common currency, with the odds of additional stimulus from the ECB is growing. From this area, the pair managed to recover to the 1.0950 region, aided by the latest US data that came in mixed.
In particular, the personal consumption expenditures price index stayed unchanged on a monthly basis in August, with the annual rate remained steady at 1.4%. The core PCE price index, which excludes volatile food and energy prices, rose to 1.8% on a yearly basis from 1.7% (revised from 1.6% and came in line with the market expectation. Meanwhile, personal spending rose only 0.1% on a monthly basis in August and fell short of estimates of 0.3%. Personal income increased 0.4% as expected. The data put some pressure on the greenback though the bulls seem to stay in the game at the end of the trading week.
In commodities, Brent crude briefly pierced the $60 handle and registered fresh two-week lows around $59.80. Then, the futures managed to bounce but remain below the $61 figure, still threatening the $60 support area. The sentiment in the market remains fragile amid a faster-than-expected recovery in Saudi crude oil output, which eased concerns of major supply disruptions. Meanwhile, weak Chinese economic data revived concerns of slowing economic growth and added to the bearish pressure on oil. Chinese industrial firms reported a contraction in profits in August, as weak domestic demand and a trade war with the United States weighed on corporate balance sheets. In the short-term, Brent will likely remain under pressure and stay vulnerable to further losses, judging by fundamentals.
Nathan Lambert, Head of Global FX Analytical Department