Investors are busy with further monitoring political events ranging from Italy and Brexit to low oil prices and US-China trade war. As the G20 Summit approaches, markets are getting more nervous and unwilling to take risks. European stocks are mixed on Tuesday amid contradictory developments in the region. The Italian government is considering a review of the state budget. The officials are reported to start budget debate on 3 December. As such, no any new documents on the budget will be presented to the European Commission until the discussions are concluded. The budget committee has started voting on the amendments to the budget and plans to complete the voting before the debate next week. So there is still uncertainty on this front as the EU officials could reject the updated budget as well.
Meanwhile, the US-China trade tensions continue to rise, which hurts investor sentiment ahead of the Summit in Argentina. Trump has said that a planned increase in tariff barriers on January 1 is highly unlikely to be delayed. These comments makes investors fear that the two leaders may fail to yield a breakthrough in trade talks this weekend. As such, Italy’s FTSE MIB loses 0.27 per cent to 19,180, Britain’s FTSE 100 sheds 0.21 per cent to 7,021, France’s CAC 40 declines by 0.21 per cent to 4,984, while German DAX 30 loses 0.19 per cent to 11,332. US stock index futures point to a negative open amid the escalating trade relations between the US and China.
The greenback is extending gains against major rivals. The global risks and growing uncertainty in Europe as well as ahead of the G20 Summit fuel USD demand as investors prefer to take a cautious tone for now. The negative Trump’s comments on tariffs are also supportive of the dollar. In the short-term, traders will focus on the Fed officials’ comments that will likely set the direction for the dollar pairs later today. The USD will rise further should the politicians allay concerns regarding the potential pause in tightening. In a wider picture, the buck will continue to follow risk trends, with investor sentiment could deteriorate amid Trump’s threats, low oil prices and uncertainty around Brexit and Italy.
EURUSD remains under the selling pressure but stays above the 1.13 handle which is the immediate support for the euro in the short term. Salvini's economic adviser Armando Siri said that the government is considering reducing budget deficit to 2.2% or 2.3%. At the same time, he noted that the government won't postpone any key welfare, pension reforms. Considering such a position, the European Commission will hardly approve the potentially revised budget plan as the changes are going to be hardly visible. As such, the downside risks for the euro will likely persist in the next couple of weeks, and the pair still could get back below the 1.13 threshold.
Brent crude is making some recovery attempts after yesterday’s technical rebound above the $60 figure. There are no any fundamental drivers behind the current bounce which looks unsustainable and too shallow to call a bottom, despite the obvious oversold conditions. Traders doubt that OPEC+ countries will agree to cut production at the upcoming meeting on December 6. By the way, Kuwait oil minister said today that it’s too early to talk about the cuts. He also mentioned that OPEC+ will ensure market has enough oil for stability and trying their best to avoid fluctuations. In addition to this uncertainty, crude oil markets are under pressure amid the hostile Trump’s rhetoric on China. Any negative comments in the context of the ongoing trade war traditionally hurt investor sentiment across the globe amid the rising fears about a slowing global growth and declining oil demand. As such, Brent will hardly be able to stage a more meaningful recovery any time soon, while the downside risks are still there.
Gold prices were rejected from daily lows below $1,220 earlier in Europe and turned positive on the day, trading around $1,224. The yellow metal is trying to resume the ascent after two days of declines but the current impetus looks too shy to bet on further rise in prices. Moreover, there is a strong resistance of $1,230 which deters the potential buyers amid a still relatively robust dollar demand. The immediate resistance comes at $1,225. A daily close above this level will open the way to the mentioned high.
Nathan Lambert, Head of Global FX Analytical Department