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The European Markets Are Staying Under the Pressure of Geopolitical Factors
The European stock market, which is still under the pressure of the developing trade conflict between China and the US, will continue to monitor the geopolitical situation, world oil prices and corporate news.
At the beginning of August, the government of the USA confirmed its plans to introduce import levy for Chinese goods and services of 200$ billion a year in total. In response, China declared that it is ready to introduce increased import levies up to 25% for 5207 names of goods from the USA with the delivery volume of about 60$ billion a year.
Alongside this, the USA have renewed the part of the sanctions against Iran. In its turn, the European Union has declared that it is going to block the implementation of these American sanctions in order to protect the interests of the EU companies.
In addition, the European traders will continue to monitor the publication of finance reports by the largest companies of this region. The reports that have been issued recently are ambiguous.
One more reference point for the European markets will be the world dynamics of the oil prices. Earlier it became known, that the US oil reserves have decreased by 6 million barrels in a week, whereas it was expected that they would decrease only by 3.1 million barrels. That being said, the petrol reserves have increased by 3.1 million barrels, and the distillation product reserves have increased by 1.8 million barrels.
The oil prices are also influenced by the change of the oil production forecast for the USA. The Energy Information Administration (EIA) of the US Department of Energy has cut the forecast of the US oil production in 2018 to 10.7 million barrels a day. In 2019 the EIA forecast of the US oil production is 11.7 million barrels, whereas before 11.8 million barrels were expected.
At the same time, the renewal of the sanctions against Iran is a positive factor for the oil prices, because the investor expect the decrease of the Iranian oil deliveries to the world markets. The rise of oil prices may lead to buying the stocks of such European companies as British BP and French Total.
Ivan Marchena, analyst at Libertex
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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
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US-China Trade Optimism Might Push European Markets Higher
The odds are quite good that European markets will see the 2 to 3% growth across key indices against the backdrop of expectations that the US-China trade conflict would finally be resolved.
European investors and traders anticipate the upcoming talks that will bring together at the negotiating table the team of representatives from the Chinese Commerce Ministry headed by Vice Minister of Commerce Wang Shouwen and their US Treasury counterparts led by the Treasury Under Secretary for International Affairs David Malpass.
Even though experts do not expect the talks to immediately trigger a breakthrough in the long-standing dispute, market participants believe that their resumption is a good sign by itself, hoping that the upcoming mid-level negotiations will set the stage for a higher-profile meeting between US President Donald Trump and Chinese President Xi Jinping in November. Currently, US and China are working to arrange the top-level meeting, but there’s no certainty yet about when it could occur. On November 6, 2018, the most of the US Congress elections will be held. So, probably, the renewed Trump-Xi talks timing will be adapted accordingly.
Another important development is that Turkish Treasury and Finance Minister Berat Albayrak and his French counterpart Bruno Le Maire will meet in late August in Paris to discuss the action to be taken to respond to the US sanctions against Turkey. Previously, the economic downturn in Turkey, where the lira plunged to its historical low, delivered a powerful blow to the European stock markets.
On the positive side, over the upcoming two months, French oil giant Total that previously officially left the US-sanctions-hit Iran could try to negotiate with the US authorities in order to be granted a special permit to further pursue its operations in the country.
Ivan Marchena, Libertex Analyst
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European Markets Will Continue To Sag On the US Trade Tensions Fears
The US multinational trade conflict will remain at the center stage for the European investors in the shortest run. Even though things seem starting to look up with the US reaching progress on a trade agreement with Mexico, and with the US and Canada likely to close in on pact as well, the European stocks are still under intense pressure.
The news that US have bagged the trade deal with Mexico cannot but lift the mood of investors in Europe. Still many of them doubt if Canada will join the pact, even though there are heated speculations on the hopes that Canada would do so. Again, there doubts, too, about if the tensions between the US and China can be smoothed over, since China might be hit with tariffs on $200 billion worth of goods as soon as late September.
The EU authorities continue to expect that the harshest scenarios might play out and consider retaliatory action to take if US hits European car imports again with punitive tariffs.
Meanwhile, it's just another story when we look at the UK market with the Brexit news as the key determinant of where the British stock indices are headed. In the offing, the British pound is likely to strengthen, and the UK stock indices might grow, as the European Union is prepared to offer UK an unprecedented close relationship after it quits the EU.
Ivan Marchena, Libertex Analyst
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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
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European Markets Bracing Up for Possible New US Tariffs on Another $267 Billion Worth.
In the offing, the European markets are likely to be headed south, as US threatens to hit China with a new portion of import tariffs.
The US-China trade war remains on the front burner as the current market highlight, as Trump threatens tariffs on another $267 billion worth of Chinese goods on top of the previously imposed bunch of $250 billion. So far, $50-billion duties have been officially levied.
Another highlight is the progress of the Brexit talks that seem to have seen some positive developments, so cheering up the British pound. But the other side of the coin is that the strong pound hurts British exporters, as it drives down their USD-denominated profits.
European markets will be bolstered up to some extent by somewhat reinvigorated global oil markets with the Brent blend oil price gaining foothold at levels around $78 per barrel. In the medium-term, the oil prices are set to grow on fears of the impending Iran’s oil supply cut due to the U.S sanctions. Some major oil importers, specifically, India, Japan and South Korea are reducing Iranian crude imports to deal with the situation.
Things might be looking up for the German market, as Qatar is eyeing Germany with 10-billion-euro investment over the next five years. The investment is planned to release financing into the German automotive industry and information technology and banking sectors.
Ivan Marchena, Libertex Analyst
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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, Analyst for the Forex Club Group
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Pressure Won’t Loosen For European Stock Markets
As Long As US-China Trade Conflict Remains Unresolved
European traders will continue to be following alertly the US and China’s dealing with the trade dispute between them. Though the fresh round of discussions kicked off, and some progress has been seen, there is always a risk that either of the two battling countries might opt out of the talks.
So if the US eventually levies tariffs on $200 billion in Chinese goods, this will reverberate globally. Investors have been apprehensive that China might slash its oil demand on a global scale should the US-China trade war escalate.
Meanwhile, the EU economy has gained some equilibrium, which is evidenced by the improved ratings from the key international agencies. Specifically, Moody’s has affirmed European Union’s ‘AAA’ long-term rating, stable outlook, due to the resilience of the credit standing of the most of the EU's member states as a key driver. And S&P raised Cyprus’ sovereign credit ratings to ‘BBB-/A-3’ from ‘BB+/B’, also upgrading Portugal's sovereign credit rating outlook to positive from stable.
Of all Europe, the UK stands out in a somewhat negative way, as its economic outlook sparks Brexit-related fears that, apart from other drivers, are ignited by apprehensions that Germany’s banking sector’s No. 1 Deutsche Bank might move assets from London to Frankfurt after Britain’s planned exit from the European Union next year.
So we can expect that the European stock prices will prevalently be sliding until some positive outcomes occur in terms of the US-China negotiations.
Ivan Marchena, Libertex Analyst
