Europe heads broadly higher, US CPI edges up, bond auction ahead

After a weaker start, the mood in the market is improving and European stocks have managed to push back into positive territory ahead of numerous risk events in the US today. US inflation data, a key bond auction and the House of Representatives voting on the USD1.9 trillion stimulus package all hold the potential to drive strong moves in the market.

The FTSE has failed to join the rebound move, lagging behind its European peers and remaining in the red. When looking to apportion blame, the heavyweight mining sector is the key culprit following a recent sell-off in base metal prices, particularly iron ore and copper. While the sell-off in copper has now stalled and today the metal is enjoying gains of almost 1%, the miners are proving slow to catch on and iron ore remains depressed.

US treasury yields continue to be a key focus for the markets especially ahead of the US 10-year bond auction later today. Let’s not forget the focus on yields really intensified following a disappointing seven-year note auction at the end of February, which saw the worst participation since the debenture was introduced in 2009. Immediately after the event, the 10-year yield broke 1.6% for the first time since before the pandemic and yields have been under the microscope ever since.

The decline in the yield on Tuesday saw tech stocks put in a powerful performance with the Nasdaq closing 4% higher and Tesla surging 20% in just one session. While Tesla is prone to volatility, that was an impressive move even by Tesla’s standards. Tech stocks are looking to hold those gains as the Nasdaq futures trade mildly higher.

Prior to the bond auction, US inflation data showed an uptick, from 0.3% to 0.4%. The small gain in CPI is unlikely to be strong enough to prompt speculation that the Fed will move earlier to tighten monetary policy.

FX – Bond auction to boost the USD?

The US dollar is pushing higher paring losses from the previous session as bond yields rebound. US bond yields continue to play a critical role in driving the markets as investors look ahead to today’s 10-year bond yield auction and US inflation data.

That said, the improving mood in the market is keeping the lid on US dollar gains.

The euro is trading back at 1.1900, recovering from an earlier decline to 1.1870. Upbeat French industrial production played a part in reversing the fortunes of the euro. Output jumped 3.3% in January, up significantly from -0.7% decline in December and well ahead of the 0.5% expected. Granted, French industrial production is by no means a major release, but it does bring a ray of light ahead of tomorrow’s ECB meeting, particularly after Q4 GDP was revised downward yesterday.

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Sophie Griffiths
Sophie Griffiths is a market analyst with OANDA, focusing on the UK and Europe. With almost 15 years of experience, she brings with her a deep-seated understanding of the financial markets, providing timely and relevant fundamental analysis across a broad range of asset classes.