European stock markets are marginally lower on Wednesday as rising coronavirus cases globally continue to unnerve investors and cast doubt over the economic recovery. Rising US-China tensions add to the downbeat tone in the regional markets following mixed-to-negative dynamics in Asia and a decent sell-off on Wall Street. China said today that it is to restrict visas for US officials over the Tibet issue.
Meanwhile, the White House has begun the process of formally withdrawing from the World Health Organization. Also on the negative side, the International Monetary Fund Chief Economist Gita Gopinath warned that many countries may need to restructure their debt in the aftermath of the pandemic. Meanwhile, the ECB official, de Guindos, noted that recent data suggests they can be more optimistic about growth.
Against this backdrop, the UK’s FTSE 100 sheds 0.32 percent to 6,170. Italy’s FTSE MIB edges lower by 0.58 percent to 19,895, France’s CAC 40 loses 0.97 percent to 4,993, while German DAX 30 declines by 0.66 percent to 12,533. U.S. stock index futures are drifting lower before the opening bell, with investors expressing some caution amid the virus developments and also ahead of the earnings season.
As for currencies, the greenback is steady on Wednesday, struggling for direction amid a lack of drivers. USDJPY is marginally higher on the day, staying in a tight range after another rejection from the 100-DMA seen yesterday. The pair has settled around 107.50, staying afloat despite the prevailing risk-off tone in the global financial markets. In a wider picture, USDJPY is still awaiting a breakout above the 108.00 handle that could take place if risky assets regain a sustainable upside impetus.
EURUSD failed to extend recent gains on Tuesday and stays unchanged today, as the 1.13 handle continues to cap bullish attempts in the common currency. The pair doesn’t derive support from the recent positive economic data as coronavirus-related worries keep weighing on high-yielding assets including the euro. Of note, in its Summer Economic Forecasts, the European Commission projected that the EU economy will shrink by 8.3% this year versus the -7.4% previous estimate.
Meanwhile, oil prices extend consolidation around the $43 handle as traders remain indecisive amid conflicting signals. The ARI report showed overnight that US crude oil stockpiles rose by more than 2 million barrels last week while analysts expected the inventories to contract by around 3 million barrels. If the official report by the EIA due later today confirms the bearish numbers, Brent crude will likely give up its upside attempts around $43 and could finish the day in the defensive. On the positive side, the market is still supported by expectations of a recovery in global energy demand once the pandemic recedes.
Nathan Lambert, Head of Global FX Analytical Department