European stocks are trading higher as investors react to the recovery attempts in the oil market after a fall by over 10% overnight. Quarterly earnings also remain in market focus. HSBC, the largest bank in Europe, said today that its first-quarter pre-tax profit fell 48% while revenue declined 5%. The lender’s stocks are trading 0.60% lower after the report. Meanwhile, UBS reported a 40% increase in profit for the first quarter, sending the bank’s shares over 5% higher. Lufthansa stocks rallied over 7.5% after the news that the German government had agreed to grant the company a rescue package worth around 9 billion euros. Europe’s oil and gas sectors are lagging as traders continue to digest another aggressive sell-off in the oil market.
Against this backdrop, UK’s FTSE 100 gains 1.56 percent to 5,938, Italy’s FTSE MIB gains 2.46 percent to 17,808. France’s CAC 40 rises by 1.31 percent to 4,564, while German DAX 30 adds 1.57 percent to 10,827. U.S. stock index futures reversed earlier losses to turn sharply higher early Tuesday ahead of fresh earnings results and the Federal Reserve policy meeting.
Elsewhere, the dollar came under the renewed downside pressure in European trading, falling nearly across the board. In part, this is due to market positioning ahead of the FOMC and the upcoming economic updates. As a result, the euro turned positive on the day and jumped to nearly one-week highs marginally below the key 1.09 handle despite the report showed that Spanish unemployment rose to 14.4% during the first quarter. Of note, the current recovery is mainly due to dollar weakness, and after a short-lived rally, the common currency may come under pressure again, especially considering the upcoming ECB meeting due on Thursday. The monetary authorities may express pessimism over the outlook for the Eurozone economy, citing the impact of the coronavirus outbreak. In other words, EURUSD will hardly be able to make a clear and sustainable break above 1.09 any time soon and could even slip back to one-month lows registered on Friday.
In commodities, oil prices remain volatile these days. Brent crude is making shallow recovery attempts after a dip below $22 earlier in the day. Despite the futures have stabilized somehow in the short-term charts, the market remains vulnerable to further losses, especially as the nearest contract is expiring on Thursday. So, Brent may get under pressure again and even threaten the $20 handle that was derailed last week. Later today, the API reveals its weekly industry report that could show another massive build-up in crude oil stockpiles in the United States. If so, the release will add to the negative sentiment in the market.
Nathan Lambert, Head of Global FX Analytical Department