European stock markets declined on Thursday as risk appetite was hit by deteriorating U.S.-China relations after the White House hinted at further sanctions on top Chinese officials to punish China for its handling of Hong Kong. Also, the US authorities are studying the national security risks of social media applications including China's TikTok and WeChat. Mixed economic data out of China failed to inspire investors, as the GDP returned to growth in the second quarter, up 3.2%, while retail sales data was worse than expected. Also, market participants keep a cautious tone ahead of the ECB meeting despite it I expected to be a non-event.
Against this backdrop, the UK’s FTSE 100 sheds 0.60 percent to 6,255. Italy’s FTSE MIB edges lower by 0.13 percent to 20,257, France’s CAC 40 loses 0.74 percent to 5,071, while German DAX 30 declines by 0.59 percent to 12,854. U.S. stock index futures turned red as economic concerns reemerged amid a further rise in coronavirus cases.
In currencies, the dollar is up against major counterparts amid the prevailing risk-off tone in the markets. EURUSD has settled around 1.14 following a rejection from the 1.1450 area. The euro trading is muted ahead of the ECB decision. However, the central bank is not expected to bring any major changes to the current stance of its monetary policy after the recent stimulus measures. The downside pressure surrounding the common currency is capped by positive expectations on the European recovery fund. On the other hand, should dollar demand stay elevated in the near term, the 1.14 level may turn into resistance on a daily closing basis.
Meanwhile, oil prices have settled around $43.50 following another rejection from local highs just below the $44 handle. Volatility in the oil market remains low despite the OPEC+ meeting results. As expected, the group of exporters decided to lower their current crude oil production cut level to 7.7 million barrels per day from the existing 9.7 million barrels per day. Elsewhere, the EIA report showed that oil inventories had shed 7.5 million barrels in the week to July 10, adding to the upbeat tone in the market earlier. Now, Brent crude needs to hold above the $32 figure in order to avoid a deeper retreat in the short term.
Gold prices are marginally lower on Thursday despite the prevailing risk aversion. In part, this is due to a pickup in dollar demand. In a wider picture, however, the precious metal remains upbeat and continues to hold above the $1,800 psychological level. It looks like that after some consolidation, the bullion will resume the ascent and could even challenge fresh multi-year highs around $1,800.
Nathan Lambert, Head of Global FX Analytical Department