European stocks pushed higher on Tuesday after a rally in Asia following a recovery on Wall Street overnight. Initially, US stocks plunged amid concerns over the date of the US-China trade deal after White House trade advisor Peter Navarro said that the trade deal is over. Later in the session, US President Donald Trump tweeted that the existing trade deal remains in place, which brought a relief rally. Also on the positive side, WTO provided its latest take on the global trade outlook and noted that global trade slowdown this year not likely to witness the worst-case scenario of a 32% decline while trade would only need to grow 2.5% per quarter to reach the optimistic scenario.
On the data front, Eurozone flash services PMI came in at 47.3 in June versus 41.5 expected. Manufacturing PMI arrived at 46.9 versus 45.0 expected. The French and German releases also came in better than expected. According to Markit, output and demand are still falling but no longer collapsing but the timing of a return to normal still something that can only be speculated upon. Meanwhile, the UK manufacturing sector activity moved back into the expansion territory in June. The flash UK manufacturing PMI came in at 50.1 as compared to 40.7 previous and 45 expected.
Against this backdrop, the UK’s FTSE 100 gains 1.19% to 6,318. Italy’s FTSE MIB edges higher by 1.65 percent to 19,800, France’s CAC 40 adds 1.66 percent to 5,030, while German DAX 30 rises by 2.68 percent to 12,591. U.S. stock index futures settled in the positive territory after manufacturing data from the Eurozone pointed to further signs of a recovery in economic activity from the coronavirus pandemic.
Fairly strong PMIs out of Europe added to the upbeat sentiment surrounding the euro and pound. In a knee-jerk reaction to the data, EURUSD rallied to one-week highs marginally above the 1.13 figure. However, the common currency lacked the impetus to confirm a break above the significant level and retreated partially. Later in the day, the US PMIs could affect dynamics in the pair through the dollar’s reaction to the numbers. In general, the euro may stay on the offensive in the short term if upbeat risk sentiment persists.
In commodities, Brent crude registered fresh 3.5-month highs on Tuesday, having exceeded the $43 handle. The futures extended gains to the $43.90 region and stay elevated during the European session. The market is supported by positive risk sentiment coupled with better-than-expected economic data that fuels expectations of global demand recovery. From the technical point of view, oil prices need to hold above $43 and confirm the latest breakout so that to extend the recovery from long-term lows registered two months ago.
Nathan Lambert, Head of Global FX Analytical Department