European stock markets jumped to fresh four-year highs on Wednesday, as comments from Trump fueled expectations of striking a phase one deal between the US and China. However, equities are unlikely to challenge all-time highs at this stage as uncertainty remains. First, there is an open question on the US bill on human rights in Hong Kong which if approved could stand as an obstacle for a potential agreement. Second, there is still a possibility that the interim deal could be postponed into 2020 as Beijing insists on more extensive tariff rollbacks. Anyway, investors enjoy the current positive developments and it seems that the upbeat tone will persist until the end of the session. Amid trade optimism, markets have mostly shrugged off fresh data which showed that Chinese industrial profits dropped for a third consecutive month in October, to the lowest level since 2011.
Against this backdrop, UK’s FTSE 100 gains 0.40 per cent to 7432, Italy’s FTSE MIB has settled just below the flatline at 23,541, France’s CAC 40 gains just 0.02 per cent to 5,931, and German DAX 30 adds 0.27 per cent to 13,271. Meanwhile, US stocks index futures are rising along with global stocks, cheering the latest trade developments. By the way, trading volumes are expected to be subdued today ahead of Thursday’s Thanksgiving Day holiday and an abbreviated trading session on Black Friday.
In currencies, the dollar looks steady against the majors. EURUSD remains in a familiar range, with the immediate support still comes around the 1.10 key mark. The upside attempts are shallow and limited, with the common currency still lacking the directional impetus. In general, the pair remains vulnerable to losses as it continues to cling to the above mentioned level and shows further attempts to probe it. Further dynamics will hinge on the incoming economic data out of the US and on risk sentiment trends in general. Positive US updates could push the greenback higher across the board.
USDJPY extends gains for a fourth day in a row, Yesterday, the pair broke above the 200-DMA at 108.90, which serves as the immediate support now. The dollar registered two-week highs around 109.20. Positive risk sentiment drives the Japanese lower, with the upside momentum persisting, allowing to expect another jump in the near term. In a positive scenario, the pair could target the 109.50 area but will hardly be able to challenge this region unless the US and China sign an interim trade deal.
In commodities, crude oil prices have been rising for a second day on Wednesday. A daily close above the $63 handle will serve as a confirmation of a local breakout, with Brent challenging four-day highs around $63.50. in part, the futures were lifted by trade-related optimism as well as positive signals from OPEC. There were reports that OPEC+ production cuts will be extended into the mid-2020. On the other hand, positive momentum in the market is capped by rising US crude oil inventories, as API reported a 3.6 million barrels increase in stockpiles. In the short term, the $63 level remains in market focus.
Nathan Lambert, Head of Global FX Analytical Department