European stocks rose broadly on Wednesday after a largely positive move from Wall Street. A lower than expected inflation exceedance in the United States has calmed inflation expectations and should not prompt the Fed to tighten its policy. Yields on Treasuries fell as low to 1.61%, giving tech stocks the edge.
As inflation fears ease in the world’s largest economy, the mood in the global market has improved, eclipsing concerns over Covid vaccines. European markets are ignoring fears that the vaccine rollout schedule could be further hampered by blood clotting issues in the Johnson & Johnson drug. Similar problems with the AstraZeneca vaccine are already slowing vaccine deployment.
However, forward-looking markets focus on reopening economies and the positive impact this will have on businesses. Giving investors a taste of what’s to come, LVMH has announced an impressive start to 2021 as American and Chinese shoppers flock to stores. The luxury retail sector is a notable outperformer in Europe.
Going forward, US bank profits will be the focus. After a brutal 2020, the outlook for 2021 looks increasingly optimistic for the sector as the US economic recovery takes hold. The earnings come against a backdrop of growing expectations of a strong economic recovery in the United States, the optimism that has already pushed the rebound in bank stock prices to outperform the larger market in half. The narrative has changed from whether and when last year’s recovery sets in, to the current question of how long will the expansion last?
Wells Fargo, Goldman Sachs and JP Morgan are expected to report before the market opens today. Bank of America and Citigroup and are expected to release their results tomorrow.
The dollar falls to its lowest for three weeks
The easing of inflationary fears and falling Treasury yields keep the US dollar under pressure for a third consecutive session. The US dollar is trading at a three-week low after yesterday’s release of US inflation data.
CPI figures revealed that consumer prices rose 0.6% in March from the previous month. This exceeded the forecast by 0.5% and the largest gain in more than eight years. However, the market is bracing for a much larger rise in inflation due to a massive fiscal stimulus, loose monetary policy and rapid vaccine rollout.
The soothing words of Fed Chairman Powell, who has spoken several times over the past few weeks, also helped contain inflation expectations and concerns about Fed policy tightening.
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