Following a solid sell-off in Asia, European stocks see mixed trading on Wednesday as investors digest Powell’s message and promising data out of Germany. Overnight, the Federal Reserve governor said that the US economy is a long way from its employment and inflation goals while the central bank remains committed to current policy. The statement helped to ease worries about rising inflation, but the overall tone among investors remained cautious amid the recent rise in bond yields.
On the data front, the German economy grew by a stronger-than-expected 0.3% in the fourth quarter, a revision higher from the preliminary estimate of +0.1%. Adding to a more upbeat sentiment in the regional markets, the UK government announced a plan to ease restrictions and open up the economy over the coming months.
Against this backdrop, the FTSE 100 in London sheds 0.23% to 6,610, Italy’s FTSE MIB loses 0.05 percent to 22,927, France’s CAC 40 is up by 0.06% to 5,783, while the German DAX 30 recovers by 0.57% to 13,943. US stock index futures were back to flat levels on the day following an earlier decline as investors seem to be shrugging off the recent pessimism.
In currencies, the dollar remains on the defensive following the dovish comments from Powell. EURUSD is now back in the green but still struggles to see a more robust ascent despite strong German data. The pair stays below the 1.2200 handle that now acts as the key hurdle on the way north. In part, this is due to a cut in delivery of vaccines to Europe as AstraZeneca told the EU that it will deliver only 90 million doses in the second quarter – half the original estimate. Later in the day, Powell’s second testament is expected. However, the speech will hardly have a substantial impact on the USD pairs.
Meanwhile, oil prices turned positive on Wednesday following a short-lived retreat witnessed yesterday. Brent crude managed to hold above the $64 handle, targeting the $65 figure during the European hours as traders await the weekly inventory data from the EIA due later in the day. According to the API estimate, US crude oil stockpiles increased by 1 million barrels last week. If the official report confirms a rise in stockpiles, oil futures could give up some gains, with the $64 support zone remaining in market focus for the time being.
Nathan Lambert, Head of Global FX Analytical Department