European stocks are trading higher on Monday as investors are awaiting a new round of the US-China trade talks and the U.S. Federal Reserve’s monetary policy meeting this week. However, market participants are mostly cautious as there are few hopes for a substantial progress in the upcoming negotiations, while the recent strong US economic data has cooled expectations of more aggressive stimulus measures in the US.
In individual stocks, it is reported that the U.S. buyout fund Blackstone Group is expected to announce the merger of its majority-owned financial data firm Refinitiv with the London Stock Exchange Group this week. There are also talks about a potential merger between food delivery companies Just Eat and Takeaway.com to form a group which would outsize both Uber Eats and Deliveroo.
Against this backdrop, the UK’s FTSE 100 adds 1.81 per cent to 7685, Italy’s FTSE MIB sheds 0.23 per cent to 21,786, France’s CAC 40 rises by 0.18 per cent to 5,619, while German DAX 30 adds 0.12 per cent to 12,434. US stock index futures are mostly flat as Fed decision, US-China trade negotiations and US jobs report coming into investor focus.
Dollar demand turned muted after the recent rally on stronger-than-expected US GDP data and ahead of the Federal Reserve meeting. EURUSD trimmed intraday losses and turned flat around 1.1120. Apart from more modest expectations of stimulus measures from the Fed, the common currency feels the downside pressure from rising speculations that the ECB could deliver accommodative measures in September due to worsening economic data in the Eurozone. The potential measures include a reduction of interest rates, the re-start of the QE program and a tiered deposit rate system. The bearish bets rose after the central bank has changed its forward guidance - now the monetary authorities expect rates to remain at ‘present or lower levels’ until at least mid-2020. Against this backdrop, the 1.11 handle remains at risk as long as the euro is trading below the 100-DMA around 1.1240.
In the oil market, Brent is trading in a tight range on Monday, oscillating around the $63 figure after the previous attempts to challenge the $64 figure. On the one hand, the prices were recently supported by worries over a potential supply disruption in the Middle East and another large draw down in U.S. crude stockpiles. On the other hand, the upside potential is still kept by concerns over a slowing global economy, especially after the OPEC and the International Energy Agency revealed the reports showing supply to outstrip demand next year if the global economy continues to slow down amid the US-China trade war.
At this stage, the market needs a fundamental trigger to get out of the boring range, with traders will continue to monitor developments in the Middle East, fresh economic data from major countries and further signals from major central banks, with focus shifts to FOMC which is widely expected to cut rates on Wednesday.
Nathan Lambert, Head of Global FX Analytical Department