European stock markets switched into a recovery mode on Thursday after a sharp global sell-off seen yesterday, as investors digested new lockdowns in France and Germany to combat rising coronavirus cases. France’s President Emmanuel Macron decided to shut down the country for a month while Germany said it would impose drastic new curbs. The lingering uncertainty over US stimulus measures was also clouding the outlook.
Investors are also nervous ahead of the ECB meeting, followed by a briefing from President Christine Lagarde due later today. Market players expect the central bank to leave its policy unchanged. At the same time, the ECB could opt for a hint of action in December when staff release new forecasts. Today, the central bank will likely offer a more cautious economic assessment amid the pandemic.
Against this backdrop, the UK FTSE 100 index adds 0.42% to 5,606, Italy’s FTSE MIB gains 0.42 percent to 17,973, France’s CAC 40 edges higher by 0.29 percent to 4,584, while the German DAX 30 rises by 0.76% to 11,648. U.S. stock index futures rebounded from Wednesday’s tumble but gains were modest as investors remain cautious due to the persisting risks. In part, a more upbeat sentiment is due to expectations that the first reading of U.S. third-quarter GDP could be the strongest on record following a record contraction in the prior quarter.
In currencies, the dollar looks steady following a rally seen on Wednesday amid a massive risk aversion. EURUSD is holding above the 1.17 handle but could suffer fresh losses if the ECB delivers a dovish stance on the economy and monetary policy. On the other hand, the upcoming US economic data could add to more upbeat investor sentiment and thus put the safe-haven greenback under pressure. As of writing, the euro was changing hands around 1.1730, staying below the 20-DMA and suffering losses for the fourth consecutive day. If the common currency extends the decline, a break below 1.17 could bring more sellers into the game.
Meanwhile, after some shallow recovery attempts, Brent crude resumed the decline and plunged to mid-June lows around $38.35 during the European hours as traders continue to digest a bearish report from the EIA that pointed to a rise in crude oil production by 1.2 million barrels per day last week. Coronavirus lockdowns in Europe, the faded stimulus hopes, and the political uncertainty in the United States adding to the negative tone in the market. If the pressure persists in the short term, the futures could get under the $38 figure. In this scenario, some OPEC + members’ comments could be expected in an effort to stop the rout.
Nathan Lambert, Head of Global FX Analytical Department