The news that the Trump administration has accepted President-elect Joe Biden’s transition into the office was cheered by global investors on Tuesday, allowing for a bullish extension in the European markets where investors continue to express growing optimism over another effective coronavirus vaccine, this time from AstraZeneca. Reports that Biden has picked former U.S. Fed Chair Yellen to be Treasury secretary added to the buoyed investor sentiment today.
On the data front, the revised figures showed that Germany’s GDP grew at a record rate of 8.5% in the third quarter, when restrictions were lifted, and the country was back to almost normal business. As a reminder, the previous flash estimate came in at 8.2%. The Ifo business climate index in Germany arrived at 90.7 points in November, compared with a downwardly revised 92.5 points in October. The expectations component declined to 91.5 points from a revised 94.7 points in October.
Against this backdrop, the UK FTSE 100 index gains 0.89% to 6,389, Italy’s FTSE MIB rises by 1.48 percent to 22,022, France’s CAC 40 is up by 1.20% to 5,558, while the German DAX 30 rises by 0.86% to 13,239. Meanwhile, US stock index futures adding to yesterday’s gains, pointing to an extension in the vaccine-fueled rally.
In currencies, the dollar is back under pressure after a short-lived recovery seen on Monday amid stronger-than-expected economic data out of the United States where the services and manufacturing PMIs surprised to the upside. Following a bounce, the greenback turned back on the defensive, digesting upbeat developments on the political front in Washington. As such, EURUSD climbed back close to the 1.1900 figure but still refrains from a decisive break above this level as the common currency itself lacks the upside momentum to see more robust gains. In the short term, the pair needs to hold above the 1.1850 area in order to retain a bullish bias.
Meanwhile, Brent crude extended the rally to March highs in the $46.70 area amid vaccine-related optimism, positive political news out of the US, and solid economic data out of Europe and United States. Dollar weakness also helps to push the prices higher these days. Later in the day, the API report could add to positive momentum in the market if the weekly report points to a decline in US crude oil inventories. On the other hand, the current elevated levels suggest there is a risk of a bearish correction that may take place if risk sentiment deteriorates in the short term. If so, the immediate support should be expected at $46.10.
Nathan Lambert, Head of Global FX Analytical Department