European stock markets are on the defensive on Tuesday as doubts in any progress in U.S-China trade talks this week and the lingering Middle East tensions weigh on sentiment. Trump said he was "comfortable with any outcome" from talks with Chinese President when they meet at a G20 summit, which cooled hopes for a substantive breakthrough in trade talks. However, the merger of two of Europe's big business consultancies somehow capped losses in the regional stocks. The technology sector cheered the news that Capgemini purchases a smaller rival Altran for 3.6 billion euros.
Against this backdrop, the UK’s FTSE 100 adds just 0.06 per cent to 7412, Italy’s FTSE MIB sheds 0.39 per cent to 21,305, France’s CAC 40 loses 0.16 percent to 5,519, while German DAX 30 sheds 0.55 per cent to 12,272. US stock index futures turned modestly higher but investors remain cautious before the upcoming summit in Japan.
After a brief jump to fresh highs above 1.14, EURUSD retreated and turned red in the daily charts. German yields hits new record low of -0.33% as bond rally continues. Meanwhile, Italy's Salvini said they were not ready to give any budget deficit commitments for 2020. In other words, he confirmed that Pome was not going to abide by EU recommendations. The rising tensions on this front put euro under some pressure amid overbought conditions.
As a result, the pair below 1.1380 but refrains from a deeper correction as the greenback remains relatively weak due to rising expectations of a rate cut by the Fed. By the way, the dollar could resume the downside move today should Powell confirm a more dovish Fed’s tone.
Oil prices are marginally lower today after another failed attempt to challenge the $65 figure on Monday. In a wider picture, the market still struggled for direction as concerns over weaker demand are partially offset by risks to supply linked to a confrontation between U.S. and Iran. By the way, weak manufacturing data released yesterday by the Federal Reserve Bank of Dallas added to worries about waning oil demand due to the trade war between the world’s two largest economies.
Later today, the API releases its weekly oil inventories data. Should the stockpiles increase, the local selling pressure on Brent could increase but the downside potential will likely be limited while geopolitics remain in the spotlight. Powell’s speech due later today could also affect the market through the greenback. Technically, the barrel needs to hold above the $63 support in order to avoid a more aggressive correction.
Nathan Lambert, Head of Global FX Analytical Department