European stocks were mostly higher on Monday amid thin trading volumes due to a UK bank holiday. In general, investor sentiment remains positive on hopes of a quick economic recovery. Earlier in the day, ECB vice president, Luis de Guindos, said the central bank may start to think about phasing out emergency stimulus if vaccinations help to speed up economic recovery. He also highlighted that the normalization of monetary policy should go hand in hand with the normalization of the economy.
Elsewhere, the EU proposed member states to ease non-essential travel restrictions into the region by taking into account progress of vaccination campaigns and developments abroad. Amid these remarks, the 10-year bund yields rose to -0.163% today, to the highest since March last year.
On the data front, German retail sales posted their biggest year-on-year increase in March since the start of the pandemic. Sales arrived at +7.7% versus +3.0% m/m expected. Eurozone April final manufacturing PMI arrived at 62.9 versus the 63.3 preliminary estimate. In Germany, the final manufacturing PMI came in at 66.2 versus 66.4 preliminary.
Against this backdrop, Italy’s FTSE MIB adds 0.33% to 24,357, France’s CAC 40 is up by 0.44% to 6,297, while the German DAX 30 adds 0.61% to 15,227. US stock index futures are pointing to slight gains ahead of the opening bell on Wall Street.
In currencies, EURUSD plunged on Friday amid widespread demand for the safe-haven dollar and has been struggling to stage a more robust recovery as the greenback looks steady at the start of the week. The euro bounced slightly on Monday, deriving support from the 1.2000 area. The recent rally in the dollar was triggered by signs that the Federal Reserve getting more hawkish after Robert Kaplan, the President of the Dallas Fed, said he wants the bank to signal to the taper of the bond-buying scheme soon. Powell is set to speak later in the day, so a pickup in volatility could be expected in the short term. If the central bank’s governor hints at a more hawkish view on monetary policy tightening, the greenback could see another rally across the board.
Meanwhile, prices have been under pressure since last Friday as the second wave of a coronavirus epidemic in India offsets optimism about a strong rebound in demand in other countries. Brent crude fell to the $66 area earlier in the day before bouncing slightly. Despite the current retreat, the bearish potential is limited as long as the prices stay above the 20-DMA, today at $65.30. In the short term, a relatively strong dollar could cap recovery attempts. On the upside, the immediate barrier now arrives at $67, followed by the $67.40 area.
Nathan Lambert, Head of Global FX Analytical Department