European stocks dipped marginally at the start of the session but managed to settle in the green afterwards despite an effective U.S. ban on Huawei telecommunications equipment underscored the potential for ongoing trade tensions with China. In turn, Huawei said that if the US restricts the company, it will not make the US safer, nor will it make the US stronger. It will only force the US to use inferior and expensive alternative equipment, lagging behind other countries and ultimately harming US companies and consumers. Investors took it as another sign of escalating tensions but refrained from a panic sell-off in riskier assets. In other news, the U.K. Prime Minister Theresa May is under renewed pressure to set a date for her departure. She will meet with a committee of Tory MPs later today.
Against this backdrop, Italian FTSE MIB adds 0.49 per cent to 20,965, recovering after yesterday’s losses, the UK FTSE 100 rises by 0.25 per cent to 7,315, France’s CAC 40 is up 0.27 percent to 5,388, while German DAX 30 adds 0.65 per cent to 12,178. US stock index futures point to a stronger start of the trading session amid strong earnings. Cisco Systems reported quarterly numbers that topped analyst expectations and traded more that 3% higher.
The dollar is mixed against the majors, with the EURUSD pair remains stuck in a familiar range, oscillating around the 1.12 level this week. The upside potential is still limited as safe-haven dollar demand prevails. Besides, the ECB governing council member, Ignazio Visco said today that the global economy, Euro-zone and Italy are experiencing a difficult time. He also added that trade tensions are mostly fueled by the US and that adds to the global economic slowdown, and recommended Italy to lift productivity to fully recover its growth path. Meanwhile, Bundesbank president and ECB governing council member, Jens Weidmann, said that domestic inflation is stubbornly low.
USDJPY switched to a recovery mode after a dip in Asia as risk sentiment is gradually improving before the opening bell on Wall Street. The pair registered a daily low at 109.33 and then rebounded to the 109.60 area, turning positive on the day. Despite the downside pressure has eased, risks for the pair are still skewed to the downside as trade rhetoric is heating again. As such, China said it will have to take necessary countermeasures if the US presses along with trade and it will never make concessions in important matters of principle. So there is a rather high possibility that risk aversion will reemerge in the near term, and the pair could get under pressure once again.
Crude oil prices rose to the $72.50 area on Thursday despite the lingering trade tensions. The market derives support from geopolitics. Fears of supply disruptions amid heightened tensions in the Middle East overshadowed a rise in U.S. crude inventories. So the key bullish driver for prices now is the risk of conflict in the Middle East, with helicopters carrying U.S. staff from the U.S. embassy in Baghdad out of concern about perceived threats from Iran. Technically, a daily close above $72 will brighten the near-term outlook further but the gains could be capped by a broader risk aversion.
Nathan Lambert, Head of Global FX Analytical Department