European stock markets turned red on Friday following mixed dynamics in Asia and profit-taking on Wall Street overnight. Investors are getting nervous ahead of a press conference by U.S. President Donald Trump over China due later today. Market participants are fearing that rising US-China trade tensions could create more hurdles for the global economy amid the coronavirus pandemic. As a result, European markets fell more than 1% in early trading on Friday though manages to trim losses afterwards.
On the data front, Eurozone consumer prices rose at the slowest pace in almost four years in May - consumer prices were just 0.1% higher than a year earlier, the smallest increase since June 2016. Core inflation has fallen to 0.9% in May from 1.1% in January. In a separate report, the ECB said lending to households slowed in April, but lending to businesses picked up.
Against this backdrop, the UK’s FTSE 100 sheds 1.03% to 6,154. Italy’s FTSE MIB edges lower by 0.17 percent to 18,320, France’s CAC 40 declines by 0.79 percent to 4,733, while German DAX 30 loses 0.94 percent to 11,671. U.S. stock index futures are trading lower as investors are bracing for President Trump to unveil more measures aimed at China over the Hong Kong issue.
In currencies, the dollar is trading lower against most counterparts. As a result, the euro received another boost and climbed to two-month highs around 1.1140 on Friday. GBPUSD rose to 1.2360 and remains marginally higher on the day. Despite dollar weakness, the upside potential in the cable is limited due to a number of issues, from Brexit uncertainty and the US-China issues to month-end flows. As such, it looks like the pair will struggle to show more robust gains in the short term, with downside risks could reemerge soon. USDJPY dipped to the 107.00 region and has settled around the 20-DMA since then. If the dollar holds above this support zone, a bounce could be expected. In a wider picture, the pair remains in the familiar range, continuing its consolidation.
Meanwhile, oil prices failed to preserve the upside momentum and fell along with other risky assets ahead of comments from Trump. Traders proceeded to profit-taking at the end of the week after failed attempts to break above the $37 handle. So, despite rising hopes for a recovery in global energy demand, the risk of further escalation in relations between the world’s two largest economies continues to keep a lid on bullish attempts in the oil market.
Nathan Lambert, Head of Global FX Analytical Department