The EU Markets Will Continue To Face Pressures From Low Oil Prices And Negative Global Stock Markets Dynamics


In the coming days, European markets will continue to be battered as stock markets have been headed south globally and lower oil prices.
On top of the globally dominating trade wars, the US Federal Reserve’s announcing the end of the ‘accommodative’ monetary policy era triggered much higher yield on the US Treasuries propelling it to the 2011 highs. And surely with the US Treasury bonds doing as great as that, the higher-risk assets are attracting less interest across markets.
Traders are awaiting a new Fed rate hike to occur soon, as the US regulator said rates would be raised four times before 2019. Most US central bankers believe that the rate will be increased three times over 2019 and will reach 2.875% at average.
The EU’s markets will also be under pressure from the globally downbeat oil prices. Despite the expected sanctions-battered Iran’s oil supply cuts’ being a powerful medium-term driver, the oil market has a bunch of negative new to digest. Specifically, the US considers some exemptions to be offered to particular oil importers concerning Iran crude exports sanctions to be imposed in November this year. Sanctions may be eased for countries that have made it clear that they are set to reduce their oil imports from the country.
Meanwhile, European investors have never stopped being worried about the Brexit prospects like that if the UK exits the EU without reaching the deal and so with a zero transition period that will hurt the Irish economy and financial system dramatically. Moreover, many British companies would like to move their business to Ireland after the Brexit.
On the bright side, France celebrates the S&P’s affirming the country’s credit rating at “AA”, outlook stable. S&P believes that the France’s unemployment rate will go gradually down from 9.1% in 2018 to 8.6% in 2021, with inflation at 2% this year and lower further on to reach 1.6% over 2019-2020.

Ivan Marchena, Libertex Analyst

European Markets Might Rebound Slightly More Upbeat On Positive News About Italy’s Budget

In the days to come, Europe’s markets will be driven by hopes over Italy-EU budget resolution and the globally stronger oil prices.
While previously traders became somewhat mopey due to Italy’s budget deficit topping their earlier expectations, but now the sentiment seems to have improved to some extent.
Traders expect that Italy’s government will act to cut the deficit. Now the Italian leaders’ coalition promises to negotiate a move to bring the deficit to 1.8% of GDP in 2021. And we’ll know very soon if the revised budget is palatable to the EU, with the investors awaiting the European Commission’s reaction.

All in all, Italy is one of the EU’s weak points. The country’s debt-to-GDP ratio is second worst in Europe after Greece. Italy’s national debt figure has come to be the highest one of all time at €2.3 trillion.

Meanwhile, Europe’s oil stock prices will be pushed upward by the oil prices that are marching aggressively towards the 2014 autumn’s highs; and they are likely to be further propelled higher due to the feared US-sanction-battered Iran’s oil supply cut.
Specifically, French oil giant Total has announced that it sees no way to resume its operations in Iran amid the massive risks due to the US sanctions.

Also, the EU is creating the Special Purpose Vehicle to bypass the US sanctions and enable financial transactions with Iran. So Europe is likely to remain able to continue trade with the sanction-beleaguered country.
Ivan Marchena, https://app.libertex.org

European Markets Might Be Up As the EU Mends Its Trade Relationship with China

Europe’s markets might be up slightly after the Federal Reserve had raised interest rates up by 0.25 percentage points in a no-surprise move. Another thing that also came as no surprise was that the regulator foresees another hike before the end of the year. The Fed’s lifting the rate marked the end of the era of “accommodative” monetary policy.

What’s really important for the EU investors is that the Federal Reserve understands that the US trade wars are likely to hurt markets and to undermine the investors’ trust. Now the non-US traders expect that the US would do something to address its trade conflicts escalated around the globe. Specifically, after the US President Donald Trump and Japan Foreign Minister Shinzo Abe agreed to negotiate a new trade deal between the two countries as part of their trade discussions, the US might go ahead and set off discussions with the EU.

Still, stock markets are somewhat uneasy due to the US’ dropping its talks with China, as traders fear that the US might levy a tax on European car imports. European leaders had had some rounds of discussions with the Chinese officials, and they vowed to support free trade. The EU is set to defend the multilateral trading system and rejects sanctions and levies as external policy tools.

Importantly, ties between China and Germany might be deepened and enter a new phase, as the two countries will work together towards developing and reforming the WTO, and protecting the developing countries’ trade interests.

Another booster for the EU stock markets is oil with its prices marching upward. Despite some fluctuations, oil prices have neared multiyear highs, as traders apprehend the looming Iranian oil supply cuts, which might happen on the back of the US sanctions targeting Iran and hurting its oil exports. And a new round of sanctions is scheduled to go into effect in November, which will not be the end of the story, with Iran likely to be slapped with new restrictive action from the US later on. The US wants Iran's oil exports to drop to zero eventually.
Ivan Marchena, Libertex Analyst

European markets will assess the effect of the trade controversies aggravation between the United States and China

The European market participants will continue to assess the effect on the world economy and Europe itself of the new reciprocal customs duties of the United States and China.
New American duties on Chinese imports worth more than $200 billion shall come into force since January 24. Currently, these duties amount to 10%, and since January 1 they will be 25%. In response to American measures China will also impose import duties since September 24 on 5.2 thousand American items worth $60 billion.
Market participants expect that escalation of trade conflict between the United States and China could lead to a slump in the world oil prices due to decrease in Chinese demand for oil. However, expectations regarding reduction of oil supplies from Iran, which suffers from American economic sanctions, may somehow level such slump.
Besides, a question on possible introduction of 25% duties on imports of European cars from the United States remains open. As the conflict between the United States and China increases, the prospects for introduction of these trade measures against European cars are becoming more and more daunting.
However, indicators of the eurozone economy also give rise to concerns. Thus, according to IFO Economic Research Institute forecast, the region’s GDP growth in 2018 may reach 2%. Forecast for economic growth in the eurozone was aggravated because previously GDP growth had been expected at the rate of 2.3% as of the current year-end.

The current year-end inflation forecast amounts to 1.2%. According to the results of Q3 and Q4, the figure is expected to reach 1.2%, and in Q1 2019 - 1.3%.
The situation with Brexit will go on. Despite some progress in discussing the conditions of the United Kingdom exit from the European Union, many issues still remain unresolved.
Ivan Marchena, analyst, Libertex

European Markets Are Hopeful That US-China Fresh Trade Talks Might See a Positive Progress.

European markets might grow a little in anticipation of a fresh round of trade talks between the US and China.
Previously, European traders felt rather downbeat, as they feared that a new portion of tariffs would be slapped on the Chinese imports to the US. But now investors have become hopeful that the US-China trade conflict will finally be resolved positively.

After China announced it would seek WTO permission to impose sanctions on the US, the news appeared that the two countries are getting ready for a fresh round of talks to tackle the trade issues between them.
European markets will also be underpinned by the growing oil prices that have neared $80 per barrel of Brent crude on apprehensions that Iranian oil supply might slump. The strong oil prices are likely to fuel the growth across the European oil and gas stocks that will be pushing higher the stock indices.

Meanwhile, the British investors are keeping an eye on the Brexit news. And even though the talks between the UK and the EU have been quite successful, traders still have quite a lot of fears in this regard, like that the UK food exports to EU may be stalled by no-deal Brexit. For instance, about 10% of the animal products exports from the UK will probably be stopped at the border due to the UK authority’s inability to get its product export certificates validated by other countries.

Ivan Marchena, Libertex Analyst

European Markets Still Anxious About the US Trade Conflict Developments

Despite the recently reached US-Mexico trade deal, the European markets will remain under pressure in the offing, as the US might levy a tax on European car imports.
Investors are awaiting the new pact to be signed within 90 days to replace the current NAFTA agreement. But then they have fears due to the US Donald President Donald Trump’s saying that the new pact will be signed with or without Canada.
Given the uncertainty, European investors still feel apprehensive that the European car imports might be hit by the US tax. What’s more is that traders are wary that tariffs would be imposed on $200 billion in Chinese imports in September.

We can expect that amid a geopolitical backdrop like that dollar will grow globally against other currencies, specifically, the euro.
Meanwhile, the global oil market is overwhelmed with sentiment shifts. In the medium term, the oil prices will be underpinned by the expectations of Iran’s oil supply cut due to the US sanctions. It is expected that Iran’s oil exports will drop by 1.5 million barrels a day as soon as September.
Previously, investors anticipated that Lybia’s oil supply would slump, as many deposits were affected by warfare. Yet now that the combat operations in the country have ended, Lybia’s oil exports were revived and topped 1 million barrels a day, which might curb the global oil prices’ growth.
Ivan Marchena, Libertex Analyst

European Indices to Be Headed Downward Amid Impending Global Uncertainties

After a short respite due to the US’ holding off the upward revision of taxes on cars imported from Europe, the key European indices will be facing pressures again due to geopolitical uncertainties. So we can expect that that the most important European stock market indicators will drop by 1 or 1.5%.
With the car tax boost postponed, European investors were more optimistic for a while. But then they are cognizant that the US will broach it again very soon. The US-China trade quandary is giving a negative cue to European investors. Even though China is trying to work through the differences, the efforts have so far been to almost no avail. The two countries have been cross-retaliating by raising import taxes even higher, and they fail to fix the conflict.
Given how things stand, market experts predict that China’s economy will be seeing a downturn as soon as in 2018 and 2019, which will hurt other economies. Even now, markets are apprehensive that the demand for the ‘black gold’ on the part of China could plunge and send the oil market prices downward globally, thus driving far-reaching negative implications to hurt the oil prices.
The US trade tensions with other countries have made the US Federal Reserve Service concerned, too. The Fed believes that the current US trade war with China and Europe and the policy moves it ignites are major catalysts for uncertainty and risks. Investors fear that the Fed’s stance on the interest rate revision will be affected by the developments of talks between all countries involved in the conflict. So it will be absolutely impossible to predict whether and when the key global currencies will grow or fall.
Ivan Marchena, Libertex Analyst

European Markets May Rise upon Putin and Merkel Meeting

The European stock markets may soar soon as the investors are waiting for some positive news after Germany's Angela Merkel meets the Russian leader Vladimir Putin. Meanwhile, the progress achieved on the trade issues between China and the US also holds out a hope of the global markets going up.
The Chinese government announced the new negotiations round will take place in late August. The parties previously tried to arrive to an agreement but have been yet unsuccessful. The investors hope now that this time the US and China will work something out.
Previously, China filed a legal action against the US to the WTO in order to make America lift the customs duties imposed on photocells and sun batteries manufactured in China.
The emerging markets fell considerably because of the situation in Turkey, but now they are recovering, too. Both the Turkish stock market and the lira dropped down drastically after the US imposed heavy customs duties on Turkish steel and aluminum. The Turkish government raised duties on various US goods in response.
The Turkish market, which has traditionally been a benchmark for other emerging markets, improved after Qatar announced it was ready to invest around $15B in Turkish economy. Besides, Germany is going to hold a meeting between the Turkish and German ministers of finance, where they are planning to discuss the economic issues of Turkey.
The European investors are meanwhile waiting for the meeting of Putin and Merkel, which is scheduled for Saturday.
Despite the overall positive atmosphere in the European stock markets, mining and oil production stocks are likely to remain under pressure, as the investors are wary of the possible US-China trade war consequences, that could include lower demand on metals and crude.
Iván Marchena, Libertex Analyst