European stock markets extend yesterday’s gains on Friday amid US-China trade optimism, with investors hopeful of progress in negotiations. Chinese Premier Li Keqiang pledged Thursday to further open up market access to foreign lenders and insurance firms. Meanwhile, today, Treasury Secretary Steven Mnuchin said he and U.S. Trade Representative Robert Lighthizer had concluded constructive trade talks in Beijing. On the data front, the picture looks mixed. German retail sales came in better than expected last month, while the UK economy grew by 1.4% in 2018, the lowest rate since 2012.
Against the trade optimism, Britain’s FTSE 100 adds 0.33 percent to 7,257, France’s CAC 40 is up 0.89 percent to 5,343, while German DAX 30 gains 0.94 percent to 11,535. US stock index futures are rising marginally as expectations of a progress overshadow concerns about slowing economic expansion.
EURUSD has registered fresh three-week lows around 1.12 earlier in the day but turned positive as German retail sales surprised to the upside. Retail sales rose by 0.9 percent on the month in February versus the expected fall by 0.9 percent. Sales rose by 4.7 percent on the year. Meanwhile, the jobless rate ticked lower to 4.9% for the current month from 5.0% earlier.
Despite the positive numbers, the upside scope for the common currency remains limited as the general concerns over the regional economy still persist, especially as inflation pressures in Germany and France are weakening. For the time being, the euro is marginally supported by positive expectations on the trade talks but should risk aversion resume, the pair will get under the selling pressure again.
USDJPY is rising for a second day in a row, recovering from a low of 110.00 reached on Thursday. The immediate upside target comes at 111.10, where the 100-DMA lies. The pair is likely to struggle near the 111.00 barrier, a break above which could open a sharp move higher. The progress in US-China trade talks could be not as substantial as investors expect, and in case of disappointment, risk-off sentiment could reemerge. This is the key downside risk for the pair in the short term that may sent the dollar below the 110.00 support.
Crude markets on track for their biggest quarterly rise since 2009. Oil prices are rising on Friday pushed up by ongoing supply cuts led by producer club OPEC and U.S. sanctions against Iran and Venezuela. Brent is challenging the $68 barrier for the first time in a week, fueled by risk-on mood in the global financial markets, with investor focus is on the ongoing trade talks. Earlier, prices shrugged off a tweet from US President Donald Trump on Thursday calling for OPEC to boost crude production. As a reminder, OPEC and its allies are scheduled to meet in June. Technically, Brent needs to break the $68 level in order to target the key $70 barrier.
Nathan Lambert, Head of Global FX Analytical Department