European stock markets shifted into a retreat mode on Thursday as fresh trade-related developments curbed risk appetite across the globe. Trump signed into law a bill backing protesters in Hong Kong. In turn, China objected to such legislation and accused the U.S. of having sinister intentions. Investors took it as a sign of deterioration in U.S.-China relations and expressed doubts about a resolution to the prolonged tariff war between Washington and Beijing. Should the situation deteriorate further, risk aversion could intensify, as the December 15 tariff deadline looms. In the weekly charts, major European indices remain positive, as stocks were drifting higher these days amid hopes for striking at least a partial trade deal by the end of the year.
On the data front, Euro zone economic sentiment rebounded more than expected in November. According to the data from the European Commission, economic sentiment in the region rose to 101.3 points this month from 100.8 in October versus 101.0 expected. In individual stocks, shares of HSBC Holdings declined 0.9% and UBS Group lost 0.8%. Germany’s SAP stocks eased 0.6%. Meanwhile, Virgin Money shares rallied over 26% after the upbeat 2020 outlook was announced.
Against this backdrop, UK’s FTSE 100 sheds 0.32 per cent to 7406, Italy’s FTSE MIB loses 0.78 per cent to 23,301, France’s CAC 40 declines by 0.19 per cent to 5,915, and German DAX 30 sheds 0.34 per cent to 13,242. U.S. markets are closed on Thursday for the Thanksgiving holiday.
In currencies, the dollar demand has waned after yesterday’s rally on strong US economic updates. Nevertheless, the US currency remains relatively resilient on Thursday, as the prevailing risk-off sentiment supports the safe-haven demand. EURUSD failed to sustain its early bullish bias and is back around the 1.10 handle after a rejection from daily highs around 1.1020. The euro failed to derive any meaningful support from better-than-expected Eurozone data as traders remain focused on trade developments. In other words, a slight decrease of demand for high-yielding assets overweighs the positive impetus from economic updates. Also, the trading activity is muted in the markets due to a holiday in the United States.
As for oil, Brent crude remains stuck within a familiar channel, limited by the 100- and 200-DMA. The bearish sentiment prevails in the market after the EIA report showed yesterday that US crude oil production rose 100K barrels per day to a new all-time high of 12.9 million barrels per day. Crude oil inventories rose 1.572 million barrels for the week ended November 22 while gasoline inventories jumped over 5 million barrels versus expectations for a rise of about 1.2 million barrels. The bearish report, coupled with the rising threat of escalation in the trade tensions sent the prices below the $63 figure. In the short term, Brent will likely remain under some pressure but still the futures could hold above the $62 handle if risk sentiment doesn’t deteriorate further.
Nathan Lambert, Head of Global FX Analytical Department