Macro economics

Analytics on 07/06/2019. Market sentiment improves but oil struggles to recover

European equity markets are trading higher Friday as investors continue to digest the latest news on trade and the global economy, as well as yesterday’s ECB policy meeting. The central bank decided that it would postpone its first post-crisis interest rate hike, while raising its inflation forecast. Oil and gas stocks leading gains with a 1.5% rise amid some rebound in oil prices. Meanwhile, officials from the US and Mexico continued talks yesterday, with Vice President Mike Pence said that he was encouraged that Mexico was open to doing more on immigration. The comments helped to lift investor sentiment.

Against this backdrop, the UK’s FTSE 100 adds 0.88 per cent to 7324, Italy’s FTSE MIB rises by 0.96 per cent to 20,371, France’s CAC 40 is up 1.44 percent to 5,354, while German DAX 30 adds 0.77 per cent to 12,044. US stock index futures are rising early Friday as Wall Street looks set for a fifth straight day of gains.

EURUSD turned lower on the day after failed attempts to get back above the 1.13 handle. The pair dipped below the 100-DMA, which now acts as the immediate resistance around 1.1270. The common currency received a boost from not as dovish Draghi as expected but the impetus was unsustainable. Today, the ECB’s Novotny said he sees no risk of a recession, but of a slowdown. He also noted that TLTRO 3 should not be a permanent instrument of the ECB.

The downside pressure on the pair came partially from dismal German data. In particular, German industrial production plunged in April by 1.9 percent compared with March. A sector-by-sector breakdown showed production of capital goods fell most sharply, at 3.3 percent. Producer goods makers reported 2.1 percent lower output, while consumer goods firms shed 0.8 percent. Energy generation was also down, at 1.1 percent. Should dollar demand pick up in the short term, EURUSD could lose ground further and lose the 1.1250 level on the way to 1.12.

Brent crude trimmed daily gains after a brief jump above the $63 handle. Oil prices recovered decently yesterday but the market lacks drivers to show a sustained rebound from 5-month lows as concerns over global demand persist. On the other hand, expectations that the OPEC+ group will prolong the deal on production cuts support the market. In the short-term, the direction in oil prices will depend on the sentiment in the global financial markets ad dollar direction. The greenback could rise should the key employment data point to a decent rise in jobs and wages. Technically, Brent needs at least to stay above the $62 figure in order to avoid another sell-off in the near term.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 2,50 %
Switzerland 3 Month LIBOR Range -0,73 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1,5 %
Australia Cash Rate 1 %
Canada Overnight Rate Target 1,75 %
All rates

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