European markets surged to nearly one-month highs on Friday amid signs of easing trade tensions between the US and China and due to a rise in German real estate companies after reports that a rent freeze in Berlin could lowered after a meeting of local governing parties. Against this backdrop, the real estate sector jumped 2% and is now set to post its best day since April.
Yesterday, both Beijing and Washington said that they discussed the next round of in-person negotiations in September. These hints have brought some relief to investors and sent the pan-European STOXX 600 0.68% higher, to its highest level since early-August. Market participants also cheered a resolution of the political crisis in Italy, where the president asked Giuseppe Conte to lead a coalition of the Five Star Movement and the Democratic Party. The avoidance of snap elections pushed the 10-year bond yield below 1% for the first time ever.
On the data front, the Eurozone CPI gained 1.0% in August, while prices stripping food and energy costs inched higher at an annualized 0.9%, a tad below estimates of 1.0%. as a reminder, German flash CPI surprised to the downside on Thursday.
Against this backdrop, UK’s FTSE 100 adds 0.65 per cent to 7230, Italy’s FTSE MIB gains 0.52 per cent to 21,509, France’s CAC 40 rises by 0.92 per cent to 5,500, while German DAX 30 gains 1.10 per cent to 11,969. US stock index futures are also rising on Friday amid signs that the world's two largest economies express a willingness to resolve their long-running trade spat.
In currencies, EURUSD extends the decline for a fifth day in a row, with the pair now threatens the 1.10 figure as the prices slipped to nearly one-month lows around 1.1030. The pair barely reacted to the CPI data as the figures did little to alter expectations of an additional package of stimulus measures from the ECB. The euro is influenced by a stronger dollar amid a recovery in the US Treasury yields from recent long-term lows. Should the upcoming US economic data come in better than expected, the pair could slip even lower, with the 1.10 figure is getting into focus. Month-end flows could also affect the short-term dynamics in the pair.
Brent crude has settled marginally above the $60 handle, after an earlier rejection from a local resistance around $60.60. Despite a better risk sentiment, investors remain cautious ahead of another portion of US tariffs against Chinese imports, which is taking place this Sunday already. Despite a lack of bullish impetus, crude oil prices are set to register solid weekly gains on rising hopes for resolving the trade dispute between the US and China. The market is also boosted by a decline in US stockpiles and looming hurricane in Florida. At the same time, global growth concerns and the impact on oil demand continue to keep a lid on Brent gains.
Nathan Lambert, Head of Global FX Analytical Department