European markets struggle for direction on Monday, with investors prefer a cautious tone amid reports the White House is considering imposing investment curbs on China, including delisting Chinese stocks in the US and limiting government pension funds’ investments in the Chinese market. Meanwhile, in Europe, British Prime Minister Boris Johnson said that he would not step down even if he fails to secure a deal to leave the European Union. Moreover, he also insisted that only his ruling Conservative government can deliver Brexit on October 31.
On the positive side, in its latest credit review report, Standard & Poor’s affirmed China’s credit rating at 'A+/A-1'while maintaining a stable outlook. The agency expects China's real GDP per capita growth to remain above 5% annually in the next three years, with stable outlook reflects its view that China will see improved fiscal performance over the next three to four years. Positive comments helped to somehow improve risk sentiment in the global financial markets.
As for the data, The UK GDP second estimate showed that the economy contracted by 0.2% q/q in the second quarter of 2019, in line with the first estimate and expectations. On an annualized basis, the economy grew by 1.3%, beating the expectations of 1.2%. The UK total business investment data arrived at -0.4% q/q in the second quarter while at -1.4% y/y for the same period – both results exceeded expectations.
Against this backdrop, UK’s FTSE 100 sheds 0.26 per cent to 7406, Italy’s FTSE MIB gains 0.11 per cent to 22,041, France’s CAC 40 rises by 0.21 per cent to 5,652, while German DAX 30 gains 0.14 per cent to 12,398. US stocks index futures are trading higher on Monday, pointing to a strong start to the week. As a reminder, Chinese stock markets were trading only on Monday, then they will be off for the National Day holiday which runs until October 7.
In currencies, the dollar looks relatively stable at the start of the trading week. EURUSD turned lower after the initial bullish attempts, as the common currency failed to challenge the 1.0950 intermediate resistance on the way to 1.10. As long as the pair remains below this level, downside risks prevail. On Friday, the pair registered fresh 2019 lows just above the 1.09 handle and still threatens this handle as the dollar bulls remain in the game. Positive economic data from the US could fuel the selling pressure and send the pair to recent lows.
Meanwhile, Brent crude extends losses and threatens the $60 handle once again. The market is on the defensive despite some relatively strong economic reports from China this morning. The official manufacturing PMI rose to 49.8 in September, slightly better than expected and advancing from 49.5 in August. However, the index remained below the 50-point mark that separates expansion from contraction, which has capped positive reaction in the risky assets including oil. Meanwhile, the lingering uncertainty surrounding the US-China trade talks continues to unnerve investors and prevents oil prices from a recovery.
Nathan Lambert, Head of Global FX Analytical Department