Europe trades broadly higher, FTSE lags on GDP

UK GDP misses forecast

European stocks are heading broadly higher in muted trade ahead of key US inflation data. The FTSE is underperforming its peers following weaker than forecast growth numbers, whilst the Dax is shrugging off disappointing sentiment numbers.

The UK economy expanded 0.4% in February, a firm rebound from January’s -2.2% contraction, but still falling short of the 0.6% expected.

The UK economy contracted by 10% last year as the pandemic ravaged the dominant service sector. The recovery across Q1 will likely be slow, given the economy was still in lockdown, although businesses were preparing for the reopening.

Following yesterday’s easing of restrictions coupled with the UK’s swift vaccine programme, January appears to be a low point, with growth picking up from February onwards.

Elsewhere in Europe, the DAX continues to hover around its all-time high despite sentiment data proving to be a mixed bag. The closely-watched German ZEW Sentiment Index headline figure dropped unexpectedly to 70.7 in April, significantly below the expected 79. Fears surrounding tighter lockdown conditions are dampening expectations for household consumption.

Looking ahead, US futures are pointing to a muted but mildly positive open as investors focus on the CPI release due. Inflation expectations have become a key driver for the markets over recent months as optimism surrounding a strong US economic recovery grows. While the Fed has stuck unwaveringly to its dovish hymn sheet, insisting any rise in inflation is expected to be short-term, markets are still focusing firmly on when any monetary policy tightening could begin.

It may not be just inflation and jobs data that the market should be watching closely; vaccination numbers could also be in the mix. The Fed’s Bullard highlighted a 75% vaccination level as a guide to begin tapering talks, giving the markets a number on which to focus.

US dollar looks to CPI data, AUD underperforms

The US dollar is edging higher, paring mild losses from the previous session. Trading is subdued as investors look ahead cautiously to the CPI data release due later today.

The yield on the benchmark 10-year Treasury yield has gained two basis points following a closely watched 10-year bond auction and sits at 1.69%. However, this remains well below the one-year high of 1.78% mark hit at the end of March. Yields and inflation expectations will remain under the spotlight as CPI data is released. Expectations are for an increase of 0.5% month-on-month and 2.5% on an annual basis, up from 1.7% in February. A strong-than-forecast number could lift yields, boosting the US dollar.

The Australian dollar is underperforming its major peers following disappointing trade data from China. China saw exports fall short at 30.6% in March compared to a year earlier against forecasts of a 35.5% increase. Meanwhile, imports rose to a 38.1% increase against a 23.3% annual rise expected.

The weak figures raised concerns over the Chinese economic recovery running out of steam, hitting the China proxy, the Australian dollar.

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Sophie Griffiths
Sophie Griffiths is a market analyst with OANDA, focusing on the UK and Europe. With almost 15 years of experience, she brings with her a deep-seated understanding of the financial markets, providing timely and relevant fundamental analysis across a broad range of asset classes.
Sophie Griffiths

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