European stock markets rally on Friday after a widespread sell-off earlier. Cheap shares attracted robust demand, which should be seen as more of a corrective rebound rather than optimism as global investors are still worried over the growth rate, trade, Italy’s budget crisis, Brexit, and political issues in the US. Trade-related fears reemerged after the reports that Trump could issue an executive order banning the use of telecommunications technology made by Chinese companies Huawei and ZTE. So far, German DAX 30 adds 1.77% to 10,565, Italy’s FTSE MIB gains 1.74 per cent to 18,378, Britain’s FTSE 100 recovers by 1.88 per cent to 6,708, while France’s CAC 40 rises by 1.84 per cent to 4,683. US stock index futures recover from early losses ahead of the official open.
The greenback is losing further ground across the major currencies. The government shutdown that will continue in early 2019 hurts the US currency as well as further reassessment of Fed rate hikes next year, on the back of signs of slowing economic growth and amid Trump’s aggressive criticism of the Federal Reserve policy. The political uncertainty could hurt the buck further in 2019 as the situation looks more contradictory in the fourth quarter, while the economy really begins to show some negative signals, though remains rather robust so far. As for the Fed, investors continue to price out interest rate hikes next year, citing various factors ranging from the President’s position on the Central bank policy to the effect from trade war with China and slowing growth in general.
EURUSD jumped further above 1.14 and got back to the 100-DMA that now comes at 1.1475 and caps the euro on the way to the key 1.15 resistance. The single currency doesn’t have any internal positive drivers at the moment but still tends to grind higher, essentially on the back of dollar weakness. In Europe, meanwhile, there are still some concerns over Italy and France, while the ECB expects a slowdown in growth in 2019, which could be a sign that the central bank won’t hike its rate next year, citing economic issues in the region and around the globe in general. However, further negative signals from the political front in the US could send the dollar further south, so the pair may challenge the 1.15 barrier in the weeks to come.
Crude oil prices show little price action on Friday as traders refrain from making bets during the last trading day of the year. The current market sentiment is neutral-to-bearish, as there are still no any substantial positive signals from the global markets as well as from the commodities. API data showed the US crude oil stockpiles increased by nearly 7 million barrels last week, which further unnerves investors fearing another wave of shale revolution in the US next year. Technically, Brent was rejected from the levels above $55 earlier and slipped back to the $53-54 range where the barrel has settled today. A daily close above the $53 figure is needed to avoid another sell-off in the short term.
Gold prices extended gains to fresh six-month highs above $1,280 on Friday. The yellow metal continues to enjoy a rally amid weakening dollar demand and global risks as well as gloomy outlook for 2019 from the major economies including the US, China, Japan and Europe. Considering the fundamental nature of the existing bearish drivers in the global financial markets, one could bet on further appreciation in the yellow metal in 2019. However, due to the presence of both bullish and bearish factors the potential rally won’t be straightforward.
Nathan Lambert, Head of Global FX Analytical Department