Europe edges higher, FTSE under-performs, Tesla due to report

European stocks trade quietly mixed at the start of what promises to be a very busy week. With UK bank earnings, US tech earnings, the FOMC rate decision, in addition to OPEC there is plenty to keep investors engaged.

The FTSE is underperforming its European peers, just failing to keep above the flatline. A stronger pound and weaker oil prices are a poor combination for the UK index. Multinationals on the FTSE are coming under pressure from the less beneficial exchange rate. Meanwhile, oil majors are dragging, tracing oil prices lower. Miners, however, are capping any selloff as copper prices hit their highest level in 10 years.

Copper is often considered a good gauge of economic activity, so the rally in copper certainly raises the question of whether this is Dr Copper calling. The recovery trade seems to be increasingly evident through commodities, particularly base metals and lumber.

The Dax is edging over the flatline, shrugging off disappointing German IFO business sentiment data. German business morale improved by less than expected in April as the third wave of Covid created supply issues for components in the industrial sector which slowed the recovery. According to the IFO, the business climate index edged up to 96.8 this month, from 96.6 last month, falling short of the 97.8 forecast.

Both the current assessment and expectations component of the report showed rising optimism but at a slightly slower pace than expected. Despite this slight slowdown, the prospects for a strong rebound in the second half remain.

The data comes ahead of Germany’s preliminary GDP release due on Friday. This will give a first glimpse as to how the Eurozone’s largest economy performed across the first three months of the year amid a resurgence of Covid. Expectations are for a -1.5% contraction.

US futures are trading flat as investors prepare themselves for a week of big impacting numbers. Tesla will start the show rolling with its results after the close today. Given better than expected Q1 deliveries expectations are high. Full-year deliveries guidance has a tendency to move the stock, so deviation from the 831,000 forecast could be a driving force for the stock. Earnings come as the stock has battled headwinds of late from negative press in China and a crash in Texas which could be connected to the autopilot system.

US dollar trades at an 8 week low

The US dollar trades under pressure at the start of the week, hovering around an 8-week low amid a broadly upbeat mood in the market and as investors look ahead to the FOMC later in the week. After dedicating many hours to calming market nerves over tightening policy over recent weeks, the Fed is expected to keep monetary policy unchanged.

As the bond market rout comes under control, yields ease and order is restored to the financial markets, the Fed is unlikely to rock the boat with taper talk. Even as US macro data reveals an improving picture for the US economy. At the end of last week, the US composite PMI gauge hit a record high as the economy fired up on all cylinders. With the economic reopening in full swing, the outlook for the US economy is likely to continue improving bar any sudden rise in Covid cases.

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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.
Sophie Griffiths

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