European stocks retreated on Tuesday, following their global counterparts lower, as a spike in coronavirus cases and rising US-China tensions weighed on global investor sentiment. California, America's most populous state, has re-imposed restrictions amid a spike of coronavirus infections, fueling concerns over the pandemic. California has more than 330,000 cases, with more than 7,000 deaths. Meanwhile, the U.S. rejected maritime claims made by China in the South China Sea and sanctioned aerospace and defense company Lockheed Martin.
On the data front, China’s export volumes rose more than expected in June. In the UK, gross domestic product recovered by just 1.8% in May while manufacturing output arrived at +8.4% in May versus -20.9% expectations and -24.4% in April. Total industrial output came in at +6.0% versus +6.0% expected and -20.2% last. In the US, the US June NFIB small business optimism index recovered to 100.6 versus 97.8 expected. Against this backdrop, the UK’s FTSE 100 sheds 0.35 percent to 6,154. Italy’s FTSE MIB edges lower by 0.93 percent to 19,817, France’s CAC 40 loses 1.69 percent to 4,970, while German DAX 30 declines by 1.48 percent to 12,612. U.S. stock index futures turned positive as investors focused on quarterly earnings reports from the big U.S. banks.
In currencies, EURUSD edged higher after an earlier dip to 1.1325. The pair climbed to the 1.1370 area that capped the rally last week. As for other economic data, German ZEW economic sentiment arrived at 59.3 in July versus 60.0 expected while the sub-index current conditions figure arrived at -80.9 in July versus -65.0 expected and -83.1 previously. The Eurozone ZEW economic sentiment for July stood at 59.6 versus 78.1 expected and 58.6 last. Weaker-than-expected updates somehow capped the bullish potential in the pair that may need the additional catalyst to challenge the above-mentioned local highs.
In commodities, oil prices are back above the $42 handle after a dip at the start of the day. Brent crude remains under some pressure ahead of the OPEC+ virtual meeting, with most traders expecting that the producers prepare to increase output from August. Joint Technical Committee meets today, with the Joint Ministerial Monitoring Committee due to meet on Wednesday. OPEC+ is expected to taper its record production cut of 9.7 million barrels per day to 7.7 million barrels per day from August through December. Traders will also focus on fresh weekly data due today from the American Petroleum Institute industry group and from the US Energy Information Administration on Wednesday.
Nathan Lambert, Head of Global FX Analytical Department