Global investors continue to express a cautious tone ahead of U.S. elections and amid a resurgence of coronavirus cases. As such, European stock markets remained mostly on the defensive on Tuesday, struggling to recover from Monday’s sell-off, with the pandemic’s second wave remaining in the spotlight as regional authorities scramble to tighten restrictions. In Italy, there were protests against lockdown restrictions at the start of the week while in France, the government is looking at options for tighter lockdown measures as the virus keeps spreading. German Chancellor Angela Merkel has warned colleagues that Germany is on the verge of losing control of the virus.
On the positive side, HSBC Holdings and Banco Santander surpassed analyst estimates. Meanwhile, Pfizer said it was planning a phase 2/3 study of a coronavirus antiviral drug in late 2020, early 2021. At the same time, the firm said they still planned to apply for emergency use of its coronavirus vaccine in late November, if the data is positive.
On the data front, Eurozone September M3 money supply arrived at +10.4% versus +9.6% y/y expected while in the UK, October CBI retailing reported sales came in at -23 vs -1 expected.
Against this backdrop, the UK FTSE 100 index gains 0.18% to 5,802, Italy’s FTSE MIB loses 0.18 percent to 18,910, France’s CAC 40 edges lower by 0.62 percent to 4,786, while the German DAX 30 declines by just 0.08% to 12,167. U.S. stock index futures are marginally lower ahead of fresh corporate results including mining equipment maker Caterpillar, pharmaceuticals Merck and Pfizer, and software giant Microsoft.
In currencies, the greenback came under some pressure despite the resurgent risk aversion on Tuesday. EURUSD briefly breached the 1.18 handle earlier in the day but managed to bounce though refrains from a break above local highs in the 1.1845 area. Earlier in the session, the common currency was pressured by downbeat comments from German Finance Minister Olaf Scholz who said that the dramatic increase in coronavirus infections in Germany was very worrying, and extra measures should be targeted, temporary and focused, ideally apply nationwide. In the short term, EUR/USD looks poised to extend the consolidative pattern amid a cautious tone among traders ahead of the ECB event due on Thursday. In a wider picture, the euro still targets the 1.19 handle while on the downside, the 100-DMA remains in focus.
Elsewhere, oil prices managed to bounce from local lows after yesterday’s sell-off but still struggle to stage a more robust recovery as risk aversion prevails in the global financial markets. The market is marginally supported by the reports about the approaching hurricane Zeta that has already led to the shutdown of crude production in the US gulf. However, it is not enough to overweigh the negative drivers and push the prices higher dramatically at this stage. In the short term, Brent needs to hold above the $41 handle on a daily closing basis.
Nathan Lambert, Head of Global FX Analytical Department