European stocks are easing back from all-time highs, with commodity stocks leading the declines. The tailwind from the weaker-than-expected non-farm payroll report has faded, and sentiment has taken a turn for the worse following downbeat Chinese trade data.
Miners are trading down around 1%, tracing base metal prices lower after Chinese export data sparked concern. Last month, Chinese imports grew at the fastest clip in a decade, fuelled by surging commodity prices. Imports jumped 51.1% YoY in May, up from April’s 43.1% rise, but still fell short of expectations of a 51.5% rise.
Exports surprised to the downside, unnerving investors. Exports grew 27.9% YoY, below the expected 32.1% and behind April’s 32.3% recorded. While global demand is recovering, exporters are dealing with higher raw material and freight costs in addition to a stronger yuan. The yuan trades at a three-year high versus the US dollar.
The Dax is underperforming its European peers after factory orders unexpectedly declined in April. German factory orders dropped -0.2% compared to March, probably due to supply-chain disruptions amid the blockage of the Suez Canal in early April. Expectations had been for a 1% rise, after a 3% increase in factory orders in March.
Germany has seen a disappointing start to the second quarter. Factory orders missed, and retail sales also dropped by 5.5% MoM. The German economy contracted by 1.8% in Q1. The rebound expected in the second quarter looks like a damp squib so far and is undoubtedly slower than anticipated.
On the plus side, Eurozone investor sentiment has helped pick the bloc’s indices off their lows. So far in June, investor morale in the region has hit its highest level since February 2018, boosted by re-opening optimism. As the third wave of Covid passes, restaurants and tourism are re-opening, providing a boost to sentiment.
Elsewhere the FTSE is one of the few European indices pushing higher. While miners are trading lower, housebuilders are boosting the index after a stronger-than-expected increase in house prices. The Halifax house price index recorded a 1.3% MoM rise, ahead of the 1.2% forecast.
FX – USD gains, GBP under pressure as Covid cases rise
The US dollar is edging higher, licking its wounds after Friday’s sell-off in the wake of softer-than-expected US jobs data. The dollar index continues to trade within a familiar range as traders turn their attention towards this week’s US CPI data.
Last month, consumer inflation shot up to a 13-year high, unnerving investors. Another strong reading is likely to send panic into the market, raising fears that the rise in inflation might not be as transitory as the Fed believes. While Friday’s headline job creation figure was weaker than forecast, average wages continued to rise, adding to concerns regarding higher inflation and a sooner move by the Fed.
The pound is trading lower amid Brexit jitters and as doubts grow as to whether the UK will be able to complete the re-opening process on 21 June. While Covid cases are once again increasing at an uncomfortably fast pace in the UK, hospitalisation numbers are low. This suggests the vaccine is succeeding in breaking the link between the two, however, investors will continue to watch this closely.
