European stock markets reversed early gains and turned negative on Thursday as investors shifted focus from a fairly neutral Federal Reserve decision to the US-China trade developments. The sentiment turned sour after reports that China is doubting the possibility of a comprehensive long-term trade agreement with Trump. Meanwhile, U.K. Prime Minister Boris Johnson and main opposition leader Jeremy Corbyn begin their first full day of campaigning ahead December election.
As for earnings, Royal Dutch Shell reported a 15% fall in third-quarter profits, causing a 3% drop in the company’s shares. French bank BNP Paribas posted a net income of 1.9 billion euros, beating expectations. However, the bank’s stocks declined 0.39%. Meanwhile, ASM International stock rallied over 8% after the semiconductor supplier reported a record third quarter.
Against this backdrop, UK’s FTSE 100 sheds 0.89 per cent to 7307, Italy’s FTSE MIB gains 0.28 per cent to 22,709, France’s CAC 40 loses 0.24 per cent to 5,751, and German DAX 30 sheds 0.11 per cent to 12,895. Meanwhile, US stocks index futures turned lower after the warning signals from China. Earlier, futures received a boost from a rise in Apple and Facebook amid better-than-expected earnings. In particular, Apple posted earnings per share of $3.03 on revenue of $64 billion, while Facebook reported a profit of $2.12 per share, topping estimates of $1.91.
On the data front, euro zone GDP grew 0.2% in the third quarter, a rise of 1.1% year-over-year. Inflation came in at 0.7% year-over-year in October, a 0.1 percentage point fall from September. After the releases, EURUSD registered more than one-week highs around 1.1175 but the local rally lacked follow-through and the euro has retreated partially since then. However, considering unimpressive economic updates out of the US, the pair may yet regain the upside momentum in the short term. The core PCE price index edged down to 1.7% on a yearly basis in September from 1.8% and came in line with the market expectation. Personal income and personal spending rose 0.3% and 0.2%, respectively, both in line with estimates.
Meanwhile, Brent crude failed to extend the early recovery from $60 and dipped below the psychological support, down to one-week lows around $59.70. Rising U.S. crude oil stocks and weak factory activity in China weighed the market sentiment and prevented the prices from a pullback. Also, uncertainty surrounding the US-China trade relations added to the gloomy and cautious picture in commodities. Now, the $60 handle serves as the immediate resistance area. As long as Brent stays below the 100-DMA, the downside risks prevail.
Nathan Lambert, Head of Global FX Analytical Department