Before the Bell: Europe set for lower open on delayed recovery concerns
After the early week exuberance of the first week of 2021, investor appetite for risk has taken a little bit of a knock the last week, largely down to concerns that the recovery story being priced in may well be a little premature, Michael Hewson, chief market analyst at CMC Markets UK, tells City PM this morning.
“It probably hasn’t helped that expectations of a shock and awe Democrat fiscal plan, are also starting to get pared back a touch as well, as details of the new $1.9 trillion fiscal aid plan start to come into clearer focus,” Hewson said.
US and European markets finished last week very much on a downbeat note, almost wiping out most of the gains seen in the first week of the year.
“The delayed recovery concerns were given added credence on weaker than expected US retail sales data as well as European governments variously announcing tighter lockdown restrictions, in the face of rising coronavirus infection and death rates,” he continued.
Weekend reports
Over the weekend reports out of Germany suggested the prospect of a night time curfew was being considered, after France imposed its own lockdown curfew from 6pm in the evening last week.
The UK government also tightened its own lockdown rules, closing all travel corridors into the country starting at 4am this morning, and imposing strict testing and quarantine restrictions on anyone entering the country.
Concern over the levels of US vaccine reserves, along with reports on Friday that vaccine deliveries in Europe were being pared back due to short term supply constraints also didn’t help, putting downward pressure on US treasury yields, and helping to push the US dollar index to its highest levels since 21 December, Madden pointed out.
In the absence of US markets for Martin Luther King Day volumes are likely to be on the low side with trading activity likely to diminish as the day progresses.
Chinese economy
This morning’s economic numbers showed that the Chinese economy expanded by 6.5 per cent in Q4, with the last three months suggesting that economic activity had more or less returned to normal.
“While the headline GDP number looks impressive, it is still clear from consumer spending numbers that the Chinese consumer is still exhibiting some level of caution with retail sales growth still below the levels last seen at the end of 2019, when spending was trending at levels close to 8 per cent,” Madden observed.
Year on year retail sales declined 3.9%, while the economy grew a very modest 2.3 per cent.