As the latest preliminary results from the two Georgia Senate races showed Democrats on the verge of controlling the upper chamber, European stocks opened higher on Wednesday. Elsewhere, the UK is entering a third national lockdown and Germany has extended its own lockdown until the end of this month. In a sign of renewed escalation in the US-China trade war, U.S. President Donald Trump signed an executive order banning transactions with eight Chinese software applications, including WeChat Pay and Ant Group’s Alipay.
On the data front, a fresh report showed that the UK services sector activity contracted more-than-expected in December. The IHS Markit/CIPS UK services PMI was revised lower to 49.4 in December versus 49.9 expected and a flash reading of 49.9. in the Eurozone, PPI rose 0.4% in November versus +0.2% m/m expected. Despite producer prices rose, that hasn't translated much into anything significant on the inflation front. Meanwhile, Eurozone December final services PMI came in at 46.4 versus the preliminary estimate of 47.3.
Against this backdrop, the FTSE 100 in London gains1.65% to 6,721, Italy’s FTSE MIB adds 1.15 percent to 22,455, France’s CAC 40 is up by 0.75% to 5,606, while the German DAX 30 adds 0.88% to 13,771. US stock index futures were mixed in the early hours of Wednesday.
In currencies, the dollar keeps losing ground nearly across the board on Wednesday. Despite mixed economic data and new lockdowns in Europe, the euro extended gains to fresh long-term highs in the 1.2350 area while staying firmly within a broader bullish trend as the greenback keeps losing its appeal amid investor bets on Democrats victory in Georgia. If the pair exceeds the mentioned tops, the 1.2400 figure will come into market focus. However, as the daily and the weekly RSIs are nearing the overbought conditions, the euro could proceed to a bearish technical correction in the short term before another bull run takes place.
In commodities, oil prices extended gains to February 2020 highs after Saudi Arabia’s pledge to cut an extra 1 million barrels a day of crude output in February and March. In general, the OPEC+ countries have agreed to keep production broadly steady during the next two months amid the pandemic and ongoing lockdowns. Of note, Russia and Kazakhstan will produce more oil over the coming months under the deal. Brent crude jumped to $54.60 on Wednesday following yesterday’s strong bounce from the ascending 20-DMA. If the rally continues, the futures could exceed the $55 handle.
Nathan Lambert, Head of Global FX Analytical Department