European Equities Decline On Dovish Macro Data, Wall Street To See Range Bound Action

European equities declined as Euro area macro data disappointed. Investors now eye US macro data for short term profit opportunities and directional cues, but the dovish forecast for US macro data hints at range-bound price action.

Summary: This week has seen Asian and European equities trade mostly in contrast to each other. US Wall Street last night saw major indices and equities close positive, supported by gains in technology sector shares and positive cues from European markets. Despite European equities closing on a mixed note with dovish tone yesterday, both Bank of England’s forward guidance and EU leaders’ summit saw a positive outcome. This greatly helped improve investor risk appetite. However, worse than expected Germany and Euro area macro data outcome today caused European equities in all major European stock exchanges to decline sharply. In the Forex market, price action was mixed as investors booked profit on rally driven by dovish Fed updates and are now on a lookout for cues from US economic data updates for the day for short term profits. As the trading session comes to close for the week, most high-risk assets are likely to close range-bound despite obtaining directional cues from events earlier in the week on profit booking activities.

Spot Gold: Despite precious metals seeing a relatively subdued price action in Asian market hours, gold traded positive in the global market. Later in the day, as European equities declined on dovish macro data, the demand for yellow metal increased resulting in positive price action in both spot and futures market. However, gains were limited as physical demand for gold in India decreased owing to the year-end tax season.

DAX Index: Germany’s DAX index opened on a positive note today with significant upside move influenced by EU leaders’ summit granting UK’s request for article 50 deadline extension. However, worse than expected Germany and Euro area flash PMI updates resulted in German equities seeing a sharp decline. This lead to the DAX index declining for the fourth consecutive trading session today leading to the worst weekly decline for the month.

european equities

Crude Oil: Crude oil price saw sharp declines today; however, price still remains well above $58 handle. The decline comes owing to profit booking activity following price hitting new highs. OPEC’s production and supply cut enforcement and US sanctions on Venezuelan & Iranian crude oil provide fundamental support to bulls. If price remains above $58.50 handle, WTIUSD will close positive for a third consecutive week when the trading session closes today.

On The Lookout: All major events of the week are done with, and most major assets have obtained directional bias. However, increased profit booking activity amid woes stemming from geopolitical issues continues to limit gains. While Brexit deadline extension has been granted, it has come with conditions attached which makes investor focus on upcoming UK parliament meeting next week and this keeps Brexit woes fresh despite current scenario favouring British Pound bulls. Similarly, headlines inspired tension surrounding Sino-U.S. trade talks on reports which hinted at China backing away from key terms on trade deal adds to increased caution in the global market. These woes underpin concerns of a global economic slowdown which has been reiterated by multiple key central bank figures across the globe in recent past. Investors now await US Manufacturing & Services PMI update and existing home sales data for short term profit opportunities as the trading session comes to close for the week.

Trading Perspective: Caution owing to concerns of an economic slowdown, weak USD and dovish US macro data forecasts hint at bearish pressure on Wall Street equities. Further, dovish cues from European market are also likely to affect investor sentiment resulting in range-bound price action today.

US Futures: US Index futures trading in international markets saw sharp declines in the European equity market. Investor sentiment turned risk averse on worse than expected macro data. Also, the dovish forecast for US macro data updates added a cautious tone. Given dovish Fed update earlier this week, risk appetite is likely to fall in US market hours’ leading to range-bound price action in US Wall Street today as the trading session comes to close for the week.

EUR/USD: Despite opening positive for the day and gaining stability above mid 1.13 handle earlier in the day influenced by positive Brexit progress, the pair fell sharply following disappointing Euro area macro data. While the pair fell below the 1.13 handle, declines were capped above mid 1.12 handle as the forecast for US macro data is dovish which if meets expectations could help EURO reclaim 1.13 handle during US market hours.

USD/CAD: The pair saw a sharp upside move since the start of the day despite weaker USD as Canadian Loonie lost strength owing to a sharp fall in crude oil price. Profit booking activity resulted in crude oil price falling below the $59 handle. This lead to the US Greenback gaining sharp bullish boost resulting in steady upside price action across the day. Investors now await the US macro data update for short term profit opportunities as the trading session comes to close for the week.