European stocks appear to be falling on Tuesday, with Germany's DAX 30 dropped around 0.5 percent on rising COVID-19 cases and new restrictions across the region.
Germany has extended the lockdown until April 18 and postponed plans to reopen its economy to try to quell a third wave of coronavirus infections amid concerns about health care capacity.
The U.S. National Institute of Allergy and Infectious Diseases questioned AstraZeneca's vaccine trial data, a day after the U.S. AstraZeneca/Oxford vaccine trial results were released Monday. Tensions with China also appear to have affected investor sentiment. The European Union, the United States, the United Kingdom and Canada have imposed sanctions on Chinese officials for human rights violations.
For this reason, we may see a slight red on US stock index contracts. Investors may also have been disappointed by data that showed U.S. home sales fell 6.6 percent month-over-month in February, stronger than market forecasts, and that the Chicago Fed's domestic activity index fell to its lowest level this month. There were also concerns about rising inflation as the U.S. economy was flooded with government spending and monetary stimulus. Market participants are now looking ahead to speeches in Congress later in the day by US Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen.
On the currency market, we may still see a potential corrective strengthening of the US currency. The dollar index crossed the 92 point level on Tuesday, which is the highest closing level in two weeks. More broadly, it seems that the combination of ultra-loose monetary policy, unprecedented government spending and the successful introduction of vaccines in the US has led investors to bet on a faster US economic recovery and higher inflationary pressures. This improved economic outlook for the world's largest economy contrasts with weak growth in the Eurozone in 2021, as governments on the Old Continent struggle with rising coronavirus cases and slow vaccination campaigns. These factors could be positive for the USD, and EUR/USD would still have a chance to test the 1.16-1.17 area.
The divergence between Europe and the US could grow and be visible not only in the currency market, but also in the previously described equity market, where at this point the economic outlook on both sides of the Atlantic seems to look very different.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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