Before the Bell: Europe set for mild recovery, US data in focus
In recent weeks global stock markets have been in rude health as traders have been banking on the Biden administration to approve the proposed $1.9 trillion stimulus scheme. In addition to that, the progress made with respect to the distribution of vaccines has added to the positive move too.
On Monday, it was confirmed the UK hit its vaccine target – vaccinating 15m people by 15 February. The update triggered chatter that Britain could ease up on some of its restrictions in the next few weeks, so that contributed to the wider view the global economy will recover from the pandemic in the months ahead, commented David Madden, market analyst at CMC Markets UK, this morning.
“It wasn’t just stocks that benefitted, commodities rallied too,” Madden told City PM this morning, adding that, recently, traders have seen oil hit a 13 month high, platinum reached its highest mark since September 2014, and copper hit an 8 year high.
” It was smooth sailing in the markets for a while but the boat was rocked a little when the yield on the US 10 year government bond hit a 12 month high on Tuesday. Dealers became a little nervous about the move in yields as it could be interpreted the markets are anticipating higher inflation down the line,” he continued.
It also might reflect the view that growth prospects are optimistic too. Either way, it could put the Federal Reserve in a difficult position as higher yields could lead to chatter about hiking rates, Madden pointed out, although the central bank has talked about maintaining rates near zero until 2023.
Yesterday, European stocks finished in the red, while the S&P 500 closed fractionally lower due to a sell off in tech stocks.
“Traders are not running scared of the situation in the US bond market but it was enough to take some of the heat out of global stocks,” he said.
Trading resumed in mainland China after the Lunar New Year celebrations, the CSI 300 is in the red. Losses are being incurred in Hong Kong and Japan too. European equity markets are set for a quiet start.
US retail
Yesterday it was revealed that US retail sales in January surged by 5.3 per cent. It appears the stimulus cheques that were a part of December’s $900 billion coronavirus relief package spurred on the aggressive spending.
Madden stressed that pumping money back into the economy was the aim of the policy but the momentum is likely to fizzle out. The PPI update for January jumped by 1.3 per cent on a monthly basis – its largest increase since 2009. It also adds to the speculation that inflation will rise.
“The minutes from last month’s Fed meeting were published last night and it showed the central bank is keen to have an accommodative policy to help assist the economy,” he noted.
“It wasn’t exactly new information but the message was that monetary policy is unlikely to change anytime soon as the economy still has a long way to go before the Fed reaches its targets,” Madden added.
Relatively high yields underpinned the rally in the US dollar, the impressive sales data added to the positive move. The greenback hit its highest level in over one week, which prompted GBP/USD to retreat from its 34 month high. EUR/USD lost ground too.
Metals suffered yesterday due to the overall slightly downbeat mood in the markets. The firmer greenback compounded the problems as the assets are traded in US dollars, so a more expensive dollar, impacts their demand. Gold dropped to its lowest mark in over two months, but it was already trending lower since early January. Copper and platinum were dented by a little profit taking, Madden concluded.
Bitcoin extended its gains as it traded north of $52,000, setting yet another all-time high.