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.
Oil heads for weekly gains
Oil is slipping away from the two-month high struck in the previous session. However, despite some declines today, the black gold is still set for decent gains across the week.
Signs of economic recovery across the week have helped oil bound higher. US GDP data stoked that optimism further. With the US economy firing up on all cylinders, the oil demand outlook is strengthening. Oil markets have been focused on the rising demand story, which it believes will offset any OPEC+ agreed rise in output from May.
Today concerns over rising Covid cases are raising their head again. The Covid crisis in India, the world’s third-largest importer of oil, continues to escalate and, in fact, shows no signs of abating. With daily cases continuing to reach new records day after day, the peak clearly hasn’t been reached yet. With ongoing lockdowns and threats of new variants, the dire Covid situation in India is the dominant headwind risk to oil currently.
Gold weighed down by stronger USD
Gold is edging lower on Friday and is set for mild weekly losses after three consecutive weeks of gains. Higher treasury yields and a stronger US dollar are weighing on demand for the precious metal.
US economic growth accelerated in the first three months of the year, as consumption rose thanks to government cheques to lower-income households and the gradual easing of lockdown restrictions. The data provided renewed optimism surrounding the economic recovery, lifting risk appetite and weighing on the safe-haven gold.
Markets are turning cautious on Friday, concerned about rising yields. US treasury yields rose to a two-week high of 1.68%, and while this remains some way off the 1.75% high seen mid-March, it is still enough to take the edge off the equity market pulling US futures southwards and dragging non-yielding gold lower.
Looking ahead, gold is likely to focus on the release of US inflation data for further clues. US PCE, the Fed’s preferred measure of inflation, is expected to rise by the most in the year.
