European stocks are trading broadly higher on Tuesday for a second straight session, as reopening optimism keeps sentiment elevated. As vaccination rates increase in the region, confidence grows in the economic recovery.
The announcement that the European Commission is taking action to reopen the continent in time for the summer travel season is raising risk appetite. The region is expected to accept vacationers from countries with low Covid infections and high vaccination rates by early June. This is especially important for countries like Spain and Italy, which are heavily dependent on tourism. Additionally, Britain’s awaited announcement of a green list for countries people can travel to adds further support to travel and tourism stocks.
The European travel and leisure sector outperformed with gains of around 1.3%. Holidays abroad seem likely to happen this year, driving up demand for travel and tourist tickets, which were hit hard during the crisis.
A similar note of optimism exists around the reopening of the US economy as many states continue to ease foreclosure restrictions. Investors see the light at the end of the Covid tunnel getting bigger and brighter. As a result, investors are more prepared to buy riskier assets, which drives stocks higher.
Adding to the optimistic mood, data revealed that manufacturing activity in the UK hit a 27-year high in April. The manufacturing PMI index rose for the 11th consecutive month, reaching 60.9, ahead of the flash estimate of 60.7 and the highest reading since 1994. New orders surged for a third consecutive month, supported by the prospect of reopening the economy.
Sell in May?
Looking ahead, US futures point to a softer start after a strong rise in the Dow Jones and S & P500 in the previous session. Investors didn’t pay much attention to the May sell adage yesterday, but with stocks hovering around all-time highs, the market is starting to look like it could be ahead. Given the particularly strong ramp-up from November to April, investors might start to see this as a good time to reduce their exposure. Whether it is May or not, after a solid six month period, we can expect a lackluster bargaining period.
FX – US bounces NFP to lead further move
The US dollar rebounded Tuesday after strong losses in the previous session. As the Fed continues to reiterate its dovish stance, investors wonder if the Fed might be forced to hike rates in the event of a frantic economic recovery.
Yesterday’s manufacturing data disappointed, dragging the US dollar down. Investors will now focus on non-farm payrolls later this week for further clues about the health of the US economy.
The appreciation of the US dollar highlighted the weakness of the Australian dollar, m which fell sharply despite the RBA economic forecast update. Despite improving growth prospects, there are still no signs of tightening monetary policy until 2024, disappointing the bulls of the Australian dollar.
Oil rises as optimism reopens
Oil is higher on Tuesday, extending the strong gains from the previous session. Investors remain resolutely focused on reopening optimism this week in hopes that the easing of foreclosure restrictions in the United States and Europe will translate into higher demand for fuel.
Europe’s plans to reduce travel restrictions are music to oil bulls. Added to Fed Chairman Powell’s comments that the US economic recovery is making real progress, this supports rising oil prices.
On the supply side, OPEC + will begin easing production cuts this month. However, given the improvement in demand, the market does not see this as a cause for concern.
Risks to demand remain, especially as Covid numbers in India surpass 20 million and the opposition leader calls for a large-scale lockdown. For now, the market has overtaken India and is focused on reopening the United States and Europe. However, we know the picture of Covid is fluid and could keep oil gains capped.
Attention will now turn to API inventory data later today.
Gold struggles with 1800 resistances
Monday’s disappointing ISM manufacturing PMI, coupled with a temporary drop in Treasury yields below 1.6%, allowed gold to start the week on solid footing. The yellow metal found strong resistance at $ 1,800 – a level that is proving difficult to break.
Today, gold is trading slightly lower, coming back from the two-month highs of the previous session. A stronger US dollar and optimistic comments from Fed Chairman Powell made the yellow metal shine.
The gold bugs will look into the U.S. ISM NY Trade Conditions Index, Factory Orders and Trade Data for further clues about the health of the economy, which has a strong impact on gold prices.