European equities are attempting to push higher amid improving Eurozone retail sales and as investors look cautiously ahead to a busy week.
Eurozone retail sales rose 3% MoM in February, rebounding after an upwardly-revised -5.2% decline in January, ahead of expectations of a 1% increase. The improvement in retail sales was thanks to easing lockdown measures in some countries.
This is much-needed good news for the region, which is experiencing a resurgence in Covid cases in some countries and a tightening of lockdown restrictions in its largest economies such as France and Germany.
The better than forecast data has given a slight lift to risk sentiment, sufficient to pull stocks into positive territory.
The FTSE is underperforming its peers in Europe owing to the stronger pound. Reopening optimism is boosting demand for sterling, resulting in an unfavourable exchange rate for those multinationals that dominate the FTSE 100.
Heavyweight banks were also under pressure, whilst miners traced commodity prices lower.
The FTSE 250 – the more domestically-focused index – was also down -0.5%, although it continues to hover around all-time highs as gyms, shops and pubs reopen today after three months of lockdown.
Looking ahead to the US open, futures are trading cautiously lower as investors digest Jerome Powell’s latest comments and brace themselves for the start of earnings season.
Over the weekend, Jerome Powell sounded upbeat about the prospects of the US economic recovery. However, he also warned that the recovery was at a critical junction as Covid risks remain.
Since the start of the month, the rotation into cyclicals and out of growth stocks has run out of steam. This could be a sign that the markets are getting more nervous about the reality of reopening the economy.
USD strength and pound rallies on reopening optimism
The USD dollar is kicking off the new week on the front foot. The upbeat economic outlook due to supportive measures from both the Federal Reserve and the federal government, in addition to a swift vaccination drive, is keeping the US dollar in demand. The softer tone in global equity markets is offering further support to the greenback.
While there is no US data due today, the bond auctions will be closely eyed for any signs that demand is waning. A weak auction could boost yields once again.
Today the UK economy takes its next step along the path to easing lockdown restrictions. All shops will reopen, in addition to hairdressers, gyms and outside hospitality. Reopening optimism is boosting the pound after a steep selloff in the previous week. With Covid cases continuing to fall and vaccine numbers rising, the UK outlook is upbeat, which should keep the pound well supported over the coming weeks.
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