European markets have steadied and trimmed some of yesterday’s losses on Thursday, as investors assess the potential consequences from the never-ending US-China trade war. There are still no signs of de-escalation of the conflict between the world’s two largest economies. China said today that it will fight till the end if US keeps escalating tensions and it won’t accept a deal that hurts sovereignty and pride. There are also reports that Beijing puts US soy purchases on hold, in another sign of the escalating trade spat. In other news, Italy’s Deputy Prime Minister Matteo Salvini demanded that the European Central Bank intervene and back government debt. As the central bank is unlikely to accept this request, the conflict over the Europe’s fiscal rules seems to be heating further.
Against this backdrop, the UK’s FTSE 100 adds 0.44 per cent to 7217, Italy’s FTSE MIB rises by 0.09 per cent to 20,019, France’s CAC 40 is up 0.38 percent to 5,241, while German DAX 30 adds 0.46 per cent to 11,891. US stock index futures are slightly higher Thursday morning, paring sharp losses in the previous session.
EURUSD is making some recovery attempts but stays close to the daily lows around 1.1225. The pair turned positive on the day as dollar demand has abated somewhat on a better risk sentiment, however, the downside risks prevail as traders remain nervous about the trade spat. The 2019 low comes at 1.1105 and could be challenged should risk aversion reemerge in the short term.
USDJPY extends gains from yesterday, which confirms a better risk sentiment in the global financial markets. The pair rose to fresh one-week high of 109.82 but retreated partially since then though remains in the positive territory on the daily charts. The current bullish correction looks unsustainable as the safe-haven Japanese yen demand could reemerge on further escalation in the US-China trade tensions. After the mentioned signals from Beijing, Washington could react in the same manner. Technically, USDJPY needs to at least challenge the 110.00 figure in order to see a more robust recovery in the near term.
Brent crude failed to hold above the $68 figure earlier in the day and turned red again. It looks like traders prefer to take profit on any bullish attempts, which confirms that the trade war and its possible consequences for global oil demand remain in focus for now. At the same time, the API report that showed the US crude oil stockpiles declined by more than 5 million barrels last week failed to give a substantial lift to prices ahead of the official release from the EIA. From the technical point of view, Brent needs to hold above the 100-DMA in the near term in order to avoid a more aggressive profit-taking.
Nathan Lambert, Head of Global FX Analytical Department