Following the downbeat tone seen at the start of the week, European stocks rose on Tuesday following solid gains in Asia, as investor sentiment has improved substantially. Earlier in the day, the European Central Bank Governing Council member Villeroy de Galhau said there is no risk of lasting inflation return in the Eurozone, and monetary policy should remain accommodative.
On the data front, according to the second estimate, the Eurozone economy shrank by 0.6% in the first quarter, in line with expectations. On an annualized basis, the GDP dropped by 1.8%, also meeting expectations. Separately, Eurozone's employment fell by 0.3% and 2.1% on quarterly and yearly basis respectively. Eurozone March trade balance came in at 13.0 billion euros versus 18.7 billion euros expected.
Against this backdrop, the UK FTSE 100 gains 0.42% to 7,062, Italy’s FTSE MIB adds 0.76% to 25,052, France’s CAC 40 is up by 0.19% to 6,379, while the German DAX 30 rises by 0.33% to 15,447. US stock index futures are signaling a rebound from losses seen overnight.
In currencies, the USD index loses further the grip and breaches the 90.00 handle while yields of the US 10-year reference have settled around 1.65%. The index has been losing ground for the fourth consecutive session already and could extend the retreat in the short term if risk sentiment remains buoyed. Overnight, Fed’s Vice-President Clarida reiterated that occasional bouts of higher inflation are deemed as transitory, adding to the selling pressure surrounding the dollar.
As such, EURUSD rallied above the 1.2200 figure for the first time in nearly three months before retreating marginally. The pair has been rising for the fourth session in a row, extending the bounce from the ascending 20-DMA that now arrives just below the 1.2100 level. The euro was unfazed by fresh economic data out of the Eurozone as the figures came in line with expectations. Now, market focus is gradually shifting towards the upcoming FOMC meeting minutes due on Wednesday. If the central bank expresses a dovish tone on monetary policy, the selling pressure surrounding the greenback would intensify.
Nathan Lambert, Head of Global FX Analytical Department