European stock markets rallied on Monday, driven higher by a recovery in the banking sector, with German lender Commerzbank shares jumping after the appointment of a new chief executive officer. Commerzbank rose 4.4% after it named a top manager at rival Deutsche Bank Manfred Knof to lead the bank, following the sudden resignation of its CEO earlier this year. Meanwhile, HSBC Holdings bounced over 3.5% from all-time lows hit last week after Chinese insurance group Ping An, the biggest shareholder in the British lender, boosted its stake.
At the same time, investors remain wary about a second wave of coronavirus outbreak in Europe threatening the economic recovery, with the UK government discussing tougher restrictions amid rising cases. Elsewhere, upbeat industrial profits data from China helped to lift investor sentiment earlier in the day. Profits at China’s industrial firms grew for the fourth straight month in August. Profits increased by 19.1% year-on-year to $89.8 billion after a 19.6% rise in July.
Against this backdrop, the UK FTSE 100 index edges higher by 1.42% to 5,925, Italy’s FTSE MIB gains 1.85 percent to 19,044, France’s CAC 40 rises by 1.95 percent to 4,821, while German DAX 30 adds 2.65% to 12,799. U.S. stock index futures retain a bullish tone after Friday’s recovery, pointing to a rebound following four consecutive weeks of declines.
In currencies, the dollar turned on the defensive as risk sentiment has improved on Monday. EURUSD managed to bounce from two-month lows marginally above the 1.16 handle but struggles to overcome the 1.1665 intermediate resistance as the common currency still lacks the appeal after the recent slide. During the week, the euro could be affected by political developments in the United States, coronavirus-related news, as well as the key US employment report due on Friday.
GBPUSD saw more robust gains on Monday as traders express optimism over the upcoming Brexit talks due this week. The pound was also lifted by recent comments from the bank of England’s Ramsden who said the central bank was not about to use negative rates imminently. At the same time, he pointed to real uncertainties and risks from the virus, the US election, and Brexit. GBPUSD rose to one-week highs above 1.29 after the remarks on negative interest rates. However, the pair is yet to confirm the latest breakout on a daily closing basis as risk sentiment could deteriorate and drive the prices lower if traders shift their focus back to the coronavirus news.
In the oil market, Brent crude turned marginally higher on the day after another attempt to break below the $42 handle that remains in market focus. The futures refrain from a more robust rebound despite positive risk sentiment as traders keep a cautious tone amid doubts in oil demand recovery due to the ongoing pandemic that keeps the economy struggling. On the positive side, a weaker dollar supports the recovery attempts in oil prices that need to get back above $43 in order to see a more sustainable recovery.
Nathan Lambert, Head of Global FX Analytical Department