After a negative start for the session on Friday, European stock markets turned positive and rallied as risk-on sentiment started to recover following a deep sell-off witnessed overnight amid the resurgent coronavirus concerns. Worries about a second wave of coronavirus resurfaced after the Fed’s Powell warned about risks on this front while the cases in the United States exceeded 2 million people on Thursday.
On the data front, Eurozone April industrial production came in at -17.1% versus -18.5% m/m expected. Further contraction in output was hardly a surprise for investors due to the widespread lockdown measures in the region and the peak fallout from the virus outbreak. Spain May final CPI arrived at -0.9% versus -1.0% y/y preliminary. Elsewhere, the German economic adviser said the country needs to avoid another lockdown even if there is a second virus wave.
Against this backdrop, the UK’s FTSE 100 gains 1.14% to 6,145. Italy’s FTSE MIB edges higher by 1.51 percent to 19,090, France’s CAC 40 adds 2.37 percent to 4,929, while German DAX 30 rises by 1.44 percent to 12,143. U.S. stock index futures are pointing to a positive open after Wall Street suffered its biggest drop since March.
In currencies, the dollar turned lower against the European counterparts after a rally witnessed on Thursday. EURUSD is trying to regain the 1.13 level but the recovery impetus looks too modest to bet on more sustainable gains in the short-term. The 1.14 handle remains the key barrier on the way north. The euro barely reacted to the above-mentioned economic data out of the Eurozone as traders were ready for another portion of dismal figures amid the coronavirus pandemic.
Meanwhile, Brent crude briefly plunged to the $37 level earlier in the day and turned positive afterwards. Still, the futures struggle to get back above the $40 key handle, being capped by the 100-DMA marginally below $39. Profit-taking in the oil market intensified yesterday amid a widespread risk aversion coupled with concerns over the outlook for global energy demand. In the short-term, Brent needs to make a decisive break above $39 in order to see a more sustainable recovery.
Nathan Lambert, Head of Global FX Analytical Department