While the Asian equities were trading in a positive manner, European stocks climbed at open but turned mixed afterwards on Tuesday despite the lack of news from the US-China trade front. The dynamics shows that investors remain cautious as the trade rhetoric could toughen at any point once again. By the way, it is reported that the UD keeps adding new demands to negotiations, which doesn’t bode well for riskier assets in general. The EU election relief seems to be abating as well.
Against this backdrop, the UK’s FTSE 100 adds 0.50 per cent to 7281, Italy’s FTSE MIB loses 0.90 per cent to 20,216, France’s CAC 40 is down 0.30 percent to 5,320, while German DAX 30 declines by 0.17 per cent to 12,050. US stock index futures are mixed as well, with Dow futures are slightly higher. Market focus is still largely attuned to global trade developments.
On the data front, Eurozone May final consumer confidence came in at -6.5 versus -6.5 preliminary, economic confidence improved to 105.1 versus 104.0 expected, business climate indicator came in at 0.30 versus 0.40 expected, while industrial confidence improved to -2.9 versus -4.3 expected. However, in general, sentiment in the region remains weak as the economy continues to limp while the outlook still looks cloudy amid the ongoing US-China trade war.
EURUSD failed to gain after the releases as the dollar demand picks up, while the common currency is under additional pressure from the EU-Italian budget woes. In particular, the European Commission is considering proposing a disciplinary procedure for Italy next week over its failure to rein in debt, which could pave the way for a 3.5 billion-euro penalty.
Against this backdrop, the pair registered a daily low of 1.1175 and has settled marginally above since then. The common currency remains under the selling pressure as long as it stays below the 1.12 level. Once above, the pair needs to overcome the 1.1215 intermediate resistance. But the short-term risks are still skewed to the downside as risk aversion prevails and the situation with Italy’s budget adds to the negative sentiment around the euro. The immediate support comes at 1.1175, a break below which opens the way to 1.1155.
Brent crude briefly jumped above the $69 figure but failed to keep gains and retreated though remains in the positive territory after a gain by 1% yesterday. One of the local bullish drivers for the oil market is the fact that Russia has finally fell in line with the OPEC+ production cuts in May as exports via the Druzhba oil pipeline have been restricted due to a contamination issue. In particular, Russia’s oil production averaged 11.126 million bpd between May 1 and 26. Add to this production cuts by OPEC+ in general, sanctions against Iran and Venezuela, and tighter global supplies that helped offset lingering worries that demand could be hurt by a US-Chinese trade spat. As such, Brent could preserve positive momentum in the short-term, though the downside risks are still there, at least, as long as the prices remain below the $70 barrier.
Nathan Lambert, Head of Global FX Analytical Department