European equities climb to record high
European stocks struck a record high on Monday in a bullish start to the new week. Indices are climbing higher as investors bet that central banks will maintain their dovish stance, even as the economic recovery gathers momentum.
The German Dax hit a fresh all-time high of 15800, as it extends gains into a fourth consecutive week. Meanwhile, the FTSE trades at a 16-month high, taking reports that Boris Johnson will delay England’s final re-opening by four weeks in its stride. Even the more domestically-focused FTSE 250 trades +0.3% higher on the day.
Last week, the ECB remained firmly dovish, keeping monetary policy ultra-loose and on hold, even as it upgraded both the growth and inflation outlook. The prospect of cheaper money for longer and a steady flow of stimulus has kept equities underpinned.
All eyes are now turning to the Fed to see if they follow suit on Wednesday. Investors will be scrutinising the announcement and pursuant press conference for any signs the Fed is pivoting away from its stance that the current spike in inflation is temporary.
Equity markets are broadly buying into the Fed’s mantra that the rise in inflation is transitory. Any sign that central banks are looking to rein in monetary policy could spook investors. Clearly, no central bank is thinking of hiking interest rates just yet. However, the time to start reducing bond purchases could be approaching.
There is no high-impacting data for investors to focus on today. However, that will change across the week. UK unemployment, CPI and retail sales are on the cards, in addition to US FOMC and retail sales, giving plenty for investors to sink their teeth into.
FX – Pound struggles on re-opening delay
The pound is underperforming its major peers, falling below 1.41 to hit a five-week low. Prime Minister Boris Johnson is set to delay lifting Covid restrictions, which is dragging on the pound.
There are concerns that the rapid rise in Covid cases in Britain could put hospitals and the National Health Service back under strain. Rather than confirming an end to social distancing rules, Johnson is now expected to push back Freedom Day by as much as four weeks.
Boris Johnson could announce some relaxation of restrictions, for example, weddings could be back on. However, overall the news would be a blow for entertainment and hospitality businesses, many of which are on their last legs.
The government is waiting for more people to have a second vaccine before taking the final step. However, many businesses in the dominant services sector could struggle to weather continued uncertainty.
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