European stocks advanced on the first trading day of 2021 as vaccine hopes along with upbeat economic data boosted risk appetite on Monday. The report showed that the Eurozone manufacturing grew the fastest in more than 2.5 years last month. Furthermore, PMIs showed factory activity across Asia continued to gain momentum in December.
On the negative side, British Prime Minister Boris Johnson warned that he may have to impose tighter restrictions as Covid-19 cases soar in the country. There are also reports that Germany is likely to extend its national restrictions beyond January 10. Cases remain very high in the U.S. as well. Meanwhile, in Japan, the government is considering a state of emergency for Tokyo and three surrounding prefectures.
Against this backdrop, the FTSE 100 in London rallies 2.74% to 6,637, Italy’s FTSE MIB gains 0.89 percent to 22,431, France’s CAC 40 is up by 1.81% to 5,652, while the German DAX 30 rises by 1.33% to 13,901. US stock index futures pointed to further gains after the benchmarks finished 2020 at record highs. Investors now shift focus to Tuesday’s Senate races in Georgia.
In currencies, the dollar remains on the back foot during the first trading session of 2021 as positive risk sentiment persists in the global financial markets. Vaccine expectations fuel recovery hopes thus curbing the safe-haven demand for the greenback. As such, EURUSD has recovered back to the 1.2300 handle, deriving additional support from upbeat economic updates. GBPUSD registered fresh May 2018 highs around 1.3700 and stayed elevated during the European hours. USDJPY failed to hold above the 103.00 figure and thus dropped to fresh March lows in the 102.70 area.
In commodities, oil prices climbed above $53 for the first time since March amid expectations that the OPEC+ alliance will agree to continue to curb output next month at a meeting later today. As a reminder, the group of producers decided last month to raise output by just 500,000 barrels per day in January. Brent crude briefly rallied to $53.30 before retreating below $53 amid some profit-taking ahead of the crucial meeting. In the longer-term, the market could derive support from the economic recovery from the pandemic. However, the recovery in energy demand could be slower than expected, so downside risks will likely continue to persist in the market anyway.
Nathan Lambert, Head of Global FX Analytical Department