The good fortune in the stock market appears to be continuing, and on both sides of the Atlantic, thanks to the provision of support for economies from governments and central banks.
European stock markets appear to be on track for a sixth consecutive week of gains, with the DAX 30 holding near its record high of 15,170, as investors seem to be focused on the prospect of a strong economic recovery, aided by massive fiscal and monetary support and the introduction of vaccines. At the same time, the growing number of COVID-19 infections in Europe and concerns over AstraZeneca's vaccine will remain in focus.
Stock market investors with rose-colored glasses
Economic data showed that industrial activity in the eurozone's largest economies, including Germany and France, fell sharply in February. On Thursday, reports from the European Central Bank meeting showed policymakers discussed a smaller increase in bond purchases under the PEPP program and agreed that the central bank doesn't need to fully utilize the pool of funds if favorable financing conditions can be maintained.
In the U.S., on the other hand, futures appear to have soared on Friday, reaching record highs. Investors may have ignored the rising number of initial claims for unemployment benefits for the second week in a row, instead focusing on the prospect of a strong economic recovery this year. Markets also welcomed the dovish message from the Federal Reserve, which reiterated that it would keep financial conditions as benign as possible for the foreseeable future. Bond yields, which have been rising relentlessly recently, fell on Thursday from the highs reached in early April.
What has hurt the pound?
On the currency market, the weakness of the British currency, which until recently was one of the more flaunted by investors, is evident. The British pound weakened below $1.37 on Friday, hitting its lowest level since February 5, as investors worry that a slowdown in the UK's vaccination rate could delay the government's plans to reopen the economy, despite Prime Minister Boris Johnson's recent confirmation that the "second phase" of the lifting of restrictions will take place next week. The Prime Minister also announced earlier this week the launch of a new mass testing program to help health officials track the pandemic.
The pound sterling hit a three-year high of $1.41 in late February, making it the best performing G10 currency at the time, supported by expectations that the British economy will accelerate after the rapid introduction of vaccines.
Gold's spring glow
In the commodities market, we could pay attention to gold, which below $1,700 has drawn a potential double bottom formation and the hammer candlestick formation we discussed in our daily morning analysis. A temporary spike in inflation in April and May could lead to an increase in negative real interest rates, which could favor gold prices this spring.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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