Biden’s spending spree and strong PMI data overshadows Covid concerns

FTSE, European indices rise

European stocks have plenty of cheer on the final day of a short trading week, with the Dax and EuroStoxx 50 hitting a fresh all-time high, successfully shrugging off Covid concerns.

News that President Biden is ready to inject a further USD2 trillion into the US economy has been well received. The world’s largest economy will see the huge injection of cash improve roads, railways, broadband and clean energy, while being offset by a rise in corporate taxes. Investors are already pricing in the read-across effect, and a boost to the US economy is good news for the global economy.

Investors are doing a good job of shrugging off news that France is heading back into its third national lockdown as Covid numbers in the Eurozone’s second-largest economy continue to rise. The CAC trades comfortably in positive territory up 0.2%, at the time of writing.

The Covid situation in Europe looks set to deteriorate further before it improves, particularly as the regional vaccine rollout remains sluggish. Germany could introduce tougher restrictions soon, while Sweden is postponing a planned easing of some rules. However, these concerns are not being reflected in the equities market, and even less so in the FX markets, where the euro is trading around a four-month low versus the US dollar.

The FTSE is outperforming its European peers after impressive manufacturing activity data. The manufacturing PMI jumped to 58.9, well ahead of the 57.9 preliminary reading, marking the highest print in a decade. New orders were a particular highlight, as was the employment subcomponent of the report, which bodes well for the recovery of the UK labour market.

A rapid UK Covid vaccine programme is helping the UK economy towards reopening after experiencing its deepest contraction in 300 years in 2020, -9.8%.

Looking ahead, US futures are pointing to a stronger start with the tech-heavy Nasdaq set to outperform. Attention will be firmly on ISM manufacturing PMI and jobless claims figures ahead of tomorrow’s non-farm payroll.

FX – Dollar remains supported around five-month highs

The US dollar holds mild gains as expectations for a strong US economic recovery remain alive and well. President Biden’s infrastructure plan looks to inject an additional USD2 trillion into the US economy, shortly after the USD1.9 trillion Covid stimulus package was approved. Throw into the mix the rapid vaccine rollout programme, boosting the prospects of a full economic reopening and it’s hard not to be bullish on the greenback.

Yesterday the ADP private payroll report revealed a whopping 517,000 jobs were created in the private sector last month, well ahead of the 176,000 in February. Strong growth in private-sector job creation bodes well for tomorrow’s closely-watched non-farm payroll report.

The euro is attempting to claw back some ground against the US dollar following upbeat manufacturing PMI data. However, given the divergence in outlook between Europe and the US over Covid, the euro could struggle to hold onto any meaningful gains.

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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.