European stocks are back in the red on Friday as risk sentiment turned sour again following a short-lived bounce on Wall Street overnight. Investors continue to digest the scandal surrounding GameStop and a number of other companies following the latest Reddit’s retail-trade frenzy. Following the unprecedented rally, GameStop stocks plunged on the trading restrictions. Also, traders express a cautious tone amid fresh signs of rising US-China tensions. While Biden reaffirmed his commitment to Taiwan, China has warned that attempts by Taiwan to seek independence means war.
On the data front, the German economy grew 0.1% in the fourth quarter of 2020 when compared to the expectations of 0% and 8.5% seen in the previous quarter while the GDP yearly rate fell by 3.9% against the previous reading of -4% and beat market expectations of -4% contraction. In Germany, January unemployment change came in at -41.000 versus +7.500 expected while the unemployment rate arrived at 6.0% versus 6.1% expected. In Spain, the Q4 preliminary GDP came in at +0.4% versus -1.5% q/q expected.
Against this backdrop, the FTSE 100 in London sheds 0.81% to 6,473, Italy’s FTSE MIB loses 0.84 percent to 21,732, France’s CAC 40 is down by 1.31% to 5,538, while the German DAX 30 declines by 1.26% to 13,494. US stock index futures are sliding, erasing gains from the previous session amid the resurgent concerns over a volatile retail-trader speculation. Also, investors keep cautious ahead of fresh US economic data due later today.
In currencies, the euro failed to capitalize on upbeat European data and came back under pressure following a modest bounce seen yesterday. The pair is trying to hold above the 1.2100 figure during the European hours, with downside risks persisting. If risk sentiment remains negative in the short term, the pair could slip to 1.2080 or even target the 1.2060 area. On the upside, EURUSD needs to stage a recovery above the key 20-DMA (today at 1.2170) in order to reclaim a bullish bias.
In other markets, oil prices erased yesterday’s losses while holding above the 20-DMA that continues to act as support. However, the upside potential looks limited at the moment as risk sentiment remains negative across the financial markets while dollar demand persists. As such, the futures could be rejected from the $55.50 area and get back below the $55 figure by the end of the day and the trading week.
Nathan Lambert, Head of Global FX Analytical Department