European stocks switched into recovery mode on Wednesday after the worst trading day of 2021 that followed a technology stock-led selloff in the U.S. on Monday on worries that rising U.S. inflation could lead to tighter monetary policy.
On the data front, the industrial output in the Eurozone arrived at 0.1% mom versus a 0.7% rise expected and -1.2% last. On an annualized basis, the industrial output jumped by 10.9% versus an 11.7% increase expected and -1.8% in the previous month. In the UK, the economy contracted by 1.5% in the first quarter of 2021. The International Monetary Fund expects U.K. GDP to grow 5.3% in 2021.
Elsewhere, European Commissioner for economy Paolo Gentiloni confirmed in the latest statement that they will keep the budget rules suspended until end-2022. Meanwhile, the EU Commission has lifted the Eurozone 2021 GDP forecast from 3.8% to 4.3%. the Commission also noted that the economic output in the region to reach pre-virus levels in the fourth quarter, sooner than expected.
Against this backdrop, the UK FTSE 100 gains 0.72% to 6,997, Italy’s FTSE MIB gains 0.05% to 24,409, France’s CAC 40 is down by 0.12% to 6,259, while the German DAX 30 adds just 0.02% to 15,123. US stock index futures look set to open marginally lower following the decline witnessed overnight.
In currencies, the dollar is marginally higher versus major rivals on Wednesday despite risk sentiment has improved somewhat. Still, the USD index has given up some early gains to the 90.40 area while US 10-year yields slipped lower to 1.61%. at the same time, the index looks well supported by the 90.00 neighbourhood at this stage. April’s inflation figures gauged by the CPI will take centre stage later today. If the report disappoints, the greenback would fall across the board.
Meanwhile, oil prices keep challenging the $69 figure on Wednesday following the recent bounce from the key 20-DMA. Earlier today, the International Energy Agency (IEA) said in its latest monthly oil market report that oil demand recovery will outpace growth in supply, adding that the demand recovery forecast assumes the COVID-19 situation in India improves. Generally upbeat comments helped to bring Brent crude back to intraday highs in the $69.20 area. However, a decisive break above the $70 barrier looks unlikely at this stage as traders remain cautious.
Nathan Lambert, Head of Global FX Analytical Department