European stocks advance amid strong earnings and not as bad as feared EZ GDP, USD rises, GBP underperforms

After a strong hand over from Wall Street, European stocks are pushing higher on Friday. Bourses are extending gains boosted by broadly upbeat corporate earnings and better-than-expected Eurozone GDP data.

The Eurozone economy contracted again in Q1 due to extended lockdown restrictions, which pushed the bloc into a second technical recession.

The bloc’s economy contracted by 0.6% quarter-on-quarter in the first three months of the year, representing a slight improvement from the -0.7% contraction seen at the end of 2020 and better than the -0.8% contraction that was forecast. On an annual basis, GDP contracted -1.8%, which is significantly better than the -4.9% contraction recorded in Q4 2020.

The Eurozone economy was locked down pretty much across the entire first quarter. Given the resurgence of Covid, extended lockdown conditions and a sluggish start to its vaccine programme, the GDP data wasn’t actually that bad. It highlights some resilience in the bloc’s economy, which bodes well for the reopening.

France was a notable outperformer, returning to growth and outshining its peers. France reported a 0.4% expansion, lifted by a mild increase in household consumption and construction activity.

However, Germany, the Eurozone’s largest economy, reported a disappointing -1.7% contraction in the first quarter, demonstrating a sharp reversal of the 0.5% growth seen in Q4 2020. Spain, Italy and Portugal also saw their economies contract.

The immediate outlook for the Eurozone economy is pretty poor. However, expectations are for a strong turnaround on the reopening as underlying activity starts to pick up. The bloc could be on the cusp of a solid bounce back when economies finally reopen their doors.

Amazon jumps pre-market

US futures are pointing to a softer start and are looking to end the week roughly flat. Amazon will be in focus and trades +2.5% pre-market after reporting an eye-watering 44% surge in sales, smashing forecasts. EPS came in at USD15.79 against expectations of USD9.54. Revenue came in at USD108.52 billion against USD104.47 billion. It’s fair to say few companies have benefited as much from the pandemic as Amazon, which is clearly reflected in these blowout numbers.

FX – USD rises, GBP underperforms

The US dollar is pushing higher, although it is still set to book a weekly loss – its fourth straight week of losses. In fact, April is set to be a month the greenback bulls will be happy to draw a line under, with the US dollar index in line for its worst monthly performance since July last year.

USD weakness has been helped by a dovish Fed, which left monetary policy unchanged despite acknowledging an improvement in the economic outlook. The Fed insisted it was still too soon to talk tapering. Still, rising yields are lifting the greenback after the strong GDP data.

The Pound is underperforming its peers. A lack of data has left investors focusing on plenty of sleazy commentary surrounding Tory Prime Minster Boris Johnson. Attention is also turning to the Scottish elections next week, which could bring the Scottish Independence topic firmly back to the table.

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