Europe advances on strong earnings post-Fed; US GDP jumps

European stocks edged broadly higher on Thursday, boosted by positive corporate earnings and the Fed’s dovish stance.

The broad mood in the market is upbeat after the Fed stuck to its dovish verse, insisting that it was still too early to discuss tapering support to the economy, despite a more optimistic view of the path of US economic recovery. The markets have been reassured by the consistent message from the Fed.

In Europe, strong earnings from the oil sector are doing some of the heavy lifting on Thursday. First-quarter results from Royal Dutch Shell and Total, in addition to higher oil prices, are not only keeping the oil and gas sector in the spotlight but are helping it to shine.

What was there not to like about Shell’s results? Royal Dutch Shell reported its highest profit in two and a half years thanks to rising oil and gas prices. The company also reduced its net debt and increased dividends by 4% – a move cheered by investors. Meanwhile, Total has seen net income return to pre-pandemic levels.

The Dax is a noticeable laggard in Europe following disappointing labour market data. While the unemployment rate holds at 6%, the unemployment change unexpectedly increased by 9k. The data comes hot on the heels of weaker German GFK consumer confidence numbers and points to the Eurozone’s largest economy struggling amid its third Covid wave.

US futures are pointing to a stronger start, with the tech-heavy Nasdaq set to outperform. Blowout results from Apple and Facebook after the close yesterday mean that both stocks are in line for a sharp gap higher on the open.

While earnings will still be coming in thick and fast, a deluge of US macro data will also help guide investors on the health of the US economy. US first-quarter GDP data posted a healthy gain of 6.4% on an annualised basis in the first three months of the year. This was just shy of the 6.5% forecast and up from 4.3% at the end of 2020.

US dollar rises from nine-week low; Euro digests mixed data

The US dollar dropped to a nine-week low versus its major peers as the Fed pushed back on taper talk. Despite the US economic recovery looking increasingly more concrete, the Fed has been extremely clear that it has no intentions of tightening policy just yet. With tapering unlikely to materialise until next year, the broad downward trend in the US dollar is supported. While the US dollar index has picked up off nine-week lows and trades higher on the day as yields rise, the technical outlook is still weak.

The euro trades mildly under pressure versus both the US dollar and the pound amid mixed data. On the one hand, weaker-than-forecast German employment figures are acting as a drag on demand. On the other, Eurozone economic sentiment data is underpinning the common currency.

Economic sentiment in Europe jumped significantly more than expected to 110.3 in April, up from 100.9 in March. The data highlights the recovery in sentiment surrounding the service sector as the vaccine programme ramps up.

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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.