European stocks opened lower on Wednesday after recent gains with investors expressing worries about rising bond yields. Despite the market mood is looking more tepid, there isn't any major driver of risk aversion just yet. Apart from rising yields, the fact that regional leaders have been cautious about lifting restrictions caps further gains in stocks following the recent rally.
On the positive side, according to the latest reports, Pfizer and BioNTech to supply the EU with an additional 200 million extra vaccine doses this year. Of note, Pfizer said that 75 million of those doses are to be supplied in the second quarter, with the EU having an option to request supply of another additional 100 million doses on top of that. Meanwhile, Italy’s new Prime Minister and the former European Central Bank President Mario Draghi said that first priority is to fight the coronavirus pandemic. He also added that the government will pass reforms and tackle emergencies.
On the data front, the UK consumer prices index came in at +0.7% in January when compared to +0.6% booked in December while beating expectations of a +0.5% print. The core CPI arrived at +1.4% YoY versus +1.4% booked in November, surpassing the consensus forecast of +1.3%.
Against this backdrop, the FTSE 100 in London sheds 0.36% to 6,724, Italy’s FTSE MIB declines by 0.51 percent to 23,322, France’s CAC 40 is down by 0.19% to 5,775, while the German DAX 30 sheds 0.72% to 13,963. US stock index futures keep flat ahead of the opening bell. Now, investors shift focus to the US retail sales data and the FOMC meeting minutes due later today. The data and the rhetoric from the central bank could affect market sentiment in the short term.
In currencies, the USD index staged a reversal on Tuesday, extending the pullback from local lows today as risk appetite has worsened. As a result, the dollar is now moving to weekly gains as the index approaches the 91.00 key handle. EURUSD slipped back under the 20-DMA and was last seen flirting with the 1.2060 region, a break below which would pave the way towards the 1.2000 psychological level. However, if the US retail sales report disappoints, the pair could trim intraday losses later today.
Oil prices climbed to the $64 handle for the first time since January 2020 before retreating slightly. The market continues to derive support from major supply disruption in the south of the United States this week, caused by a historic winter storm in Texas. Later today, the API report could deter bulls in the short term if the data points to an increase in US crude oil inventories. However, the stockpiles are expected to contract further, so Brent will likely stay elevated in the short term.
Nathan Lambert, Head of Global FX Analytical Department