After a sharp selloff in the previous session, European stocks traded higher on Wednesday morning as investors digest economic data out of the Eurozone. On the data front, the final services PMI in Germany slipped back below the key 50.0 threshold in April, to 49.9, while the same index in the Eurozone bettered the preliminary print at 50.5 from 49.6. Eurozone March PPI arrived at +1.1% versus +1.2% m/m expected.
Overnight, Wall Street’s benchmarks were mostly lower after U.S. Treasury Secretary Yellen said interest rates may have to rise to keep the economy from overheating. However, the ascent in European equities shows that investors mostly shrugged off Yellen’s comments.
Meanwhile, in his latest remarks, NY Fed president, John Williams, noted that there are no signs that bond buying is creating financial sector imbalances. He expects inflation to rise above 2% this year but likely will be temporary, while the central bank has the ability to respond in case inflation gets too high a level.
Against this backdrop, the UK FTSE 100 gains 1.18% to 7,004, Italy’s FTSE MIB adds 1.30% to 24,288, France’s CAC 40 is up by 0.98% to 6,313, while the German DAX 30 advances 1.33% to 15,054. US stock index futures edged higher Wednesday, pointing to a rebound in the major indexes.
In currencies, the USD index extended the recovery to the 91.40 region on Wednesday, as US 10-year yields reclaimed the 1.60% figure following recent lows. Later in the day, market focus will shift towards the ADP report for the month of April seconded by the ISM non-manufacturing. Also, Fed officials Evans, Rosengren, and Mester are all due to speak.
EURUSD slipped to April 19 lows around 1.1985 before bouncing to the 1.2000 figure where the 20-DMA lies. the euro needs to turn this moving average back into support in order to stage a recovery and avoid deeper losses in the short term. The latest sell-off was after US Treasury Secretary Yellen talked about rate hikes. Now, as traders have already digested the hawkish message, the selling pressure surrounding the common currency could ease. However, the upside potential looks limited at this stage as the greenback remains steady across the board and could see more gains in case of a more pronounced hawkish shift in the FOMC.
Nathan Lambert, Head of Global FX Analytical Department