On Wednesday, the US stocks saw their best performance in almost a decade following a record sell-off and the government reassurances that Powell would remain in his post. But the euphoria evaporated quickly as global investors remain unnerved by a number of risks and bearish factors, including the ongoing US-China trade war, Trump’s criticism of Fed Chair Powell, the partial US government shutdown, the decline in oil prices and signs of global growth slowdown. As such, stocks in Asia showed a mixed tone, with negative sentiment prevailed amid the weak economic data from China, where profits in the industrial sector declined 1.8 percent in November.
In Europe, the sentiment has improved early in the session, partly due to reports that a US government delegation would travel to Beijing in early January to hold trade talks. But this was not enough to prevent another wave of profit-taking at the end of the month, quarter and the year. As such, German DAX 30 sheds 1.69% to 10,453, Italy’s FTSE MIB loses 1.18 per cent to 18,180, Britain’s FTSE 100 declines by 1.05 per cent to 6,615, while France’s CAC 40 loses 0.06 per cent to 4,623. US stock index futures resumed the drop after a short-term rally seen on Wednesday, as investors are nervous ahead of a possible Senate vote on a bill to end the partial government shutdown.
After a brief relief, the dollar resumed its downward path as traders remain focused on the political uncertainty in the US that makes the greenback lose its safe haven appeal, on top of concerns over the Fed’s policy in 2019. EURUSD is back on the rise after a correction to 1.1350. The reports that the Italian parliament will vote on the budget by December 29 gave some lift to the euro, as well as the resurgent USD supply. But the price struggles to get back above the 1.14 barrier as the latest ECB economic bulletin stated that significant monetary stimulus is still needed, which is a bearish factor for the single currency. So the pair will hardly be able to firmly get back above 1.14 in the nearest future as the trading activity remains subdued.
USDJPY is back under pressure as the dollar failed to settle above 111.00. As risk sentiment turned sour again, investors resumed yen buying, refusing to take risks ahead of the New Year holidays. Further decline in the US Treasury yields adds to the negative pressure on the pair. However, the greenback manages to stay above the 110.50 so far and should the price refrain from challenging this intermediate support, the lows in the 110.25 region will remain intact in the short term.
Crude oil prices resumed the decline after a rally seen yesterday, when Brent recovered by 8%. The price has slipped from the levels above $55 and turned negative on the day, trying to find support around the $53 hurdle. The sentiment in the oil market remains subdued due to a number of bearish factors, including the negative investor sentiment in the global financial markets. At this stage, Brent will hardly be able to attract a robust demand, despite the oversold conditions as traders need at least one bright spot to resume buying. Should the API and EIA data show a decline in US oil inventories, the barrels could climb back above $55. However, considering the strong market concerns over the rising supply and waning demand, any rally could be taken as a selling opportunity at this stage.
Nathan Lambert, Head of Global FX Analytical Department