European equities surrendered early gains and turned mostly negative on Tuesday, though the selling pressure looks rather limited as well. After the initial decline, China stocks were buoyed by the country’s regulator comments on encouraging buybacks. This has fuelled some risk demand later. On the other hand, the still lingering global risks coupled with dismal euro area data prevented the regional stocks from appreciating. Trade tensions and mixed earnings don’t add the optimism as well. As such, Italy’s FTSE MIB loses 0.28 per cent to 18,987, Britain’s FTSE 100 adds 0.20 per cent to 7,040, France’s CAC 40 declines by 0.22 per cent to 4,978, while German DAX 30 sheds 0.26 per cent to 11,305. US stock index futures look set to pair some losses after the latest sell-off.
The dollar is on the offensive again after some correctional moves earlier in the day. The euro is pressured by weak Italy’s and euro zone GDP data. Italy Q3 flash GDP came in flat vs. +0.2% expected – growth has stalled completely for the first time in almost four years. Against the backdrop of budget woes in the third largest euro area economy, this signal won’t help obviously. Meanwhile, Italy’s Conte reiterated that the government won’t change budget deficit target. The regional economic growth has slumped to four-year low in the third quarter – the flash GDP estimate came in at +0.2% versus 0.4% expected. So the EURUSD pair has accelerated the decline following the releases, while the widespread dollar demand has exacerbated the technical picture. The price has extended the move down to 1.1345, so the 1.13 figure remains at risk.
USDJPY jumped to three-week highs marginally below the 113.00 figure amid the stronger dollar and weaker yen demand as the risk aversion is subdued on Tuesday. However, further rally is in doubt as the global sentiment is very unstable lately, and risk aversion may yet resume. Investors are getting more and more sensitive to signals of slowing global growth, especially amid a number of risks ranging from Brexit uncertainty to trade wars and Trump’s protectionism in general. In this context, we still see upside risks for the yen as a safe haven currency. So the pair will hardly be able to firmly regain the 113.00 figure and target the 114.50 barrier any time soon. Meanwhile, the US employment report due on Friday could fuel dollar demand across the board should the numbers surprise to the upside.
Crude oil market is still depressed. Brent has slipped to the $76.30 area and could lose the $76 hurdle once again should traders fail to find inspiration for buying in the short term. Investors worry that the slowing global growth will cap crude oil demand, which could drag prices lower against the backdrop of increasing production by the US shale companies and OPEC countries that are eager to take an opportunity amid the Iranian sanctions. So the fundamental picture is getting more clouded for the prospects of commodity markets, which is discouraging bulls. As such, the path of least resistance now is south, with $76 mark is at risk again. On the upside, the immediate resistance comes at $78. As long as the barrel is trading below this barrier, the downside risks prevail.
Gold prices have been retreating for a second day in a row, with the bullion has eroded the $1,220 figure recently. This technical signal may open the way to a deeper correction as the dollar is gaining strength ahead of the key Friday’s employment data. The yellow metal needs to see a widespread risk aversion coupled with weaker greenback to attract buyers again. The price may extend the correction further but needs to stay above the $1,215 area to avoid a more aggressive sell-off. A daily close below $1,220 will mark a worse technical outlook in the short term.