Europe Points Lower Despite Strong Session on Wall Street

Despite the S&P reaching an all time high and the Dow and Nasdaq closing in positive territory, the upbeat mood has not transferred into Europe

Charts (6)

Despite the S&P reaching an all time high and the Dow and Nasdaq closing in positive territory, the upbeat mood has not transferred into Europe. European bourses are looking towards a softer start, with the Dax set to outperform its peers whilst the FTSE prepares to lag after a stellar previous session.

The FTSE surged 2% on Wednesday on stimulus hopes after data revealed that the UK economy experienced its deepest contraction since records began. Optimism surrounding vaccines, infections plateauing and encouraging US inflation data reinforced confidence in the broader markets resulting in bourses across the board booking a positive finish.

Inflation US vs Germany
Data wise, US inflation saw a better than forecast 0.6% mom increase in July. Core CPI was also +0.6% in its largest increase since 1991. Delving deeper into these figures, the jump in inflation was primarily down to motor vehicles and apparels whilst food prices eased after climbing during the pandemic. This level of inflation is unlikely to be sustained but it certainly can’t be ignored as it points to an encouraging recovery.
The strong jump in US inflation is in sharp contrast to German inflation data. Germany experienced deflation as prices declined -0.5% mom in July and fell -0.1% on an annual basis. 

Looking ahead US initial jobless claims will be in focus. Expectations are for 1.12 million Americans to have signed up for unemployment benefits. This is only down marginally from last week’s 1.18 million, as the recovery in the US labour market appears to be stalling. 

Still no sign of US stimulus
Perhaps more concerning are the 16 million jobless Americans who are longing for the next stimulus package to be passed in Congress as the stalemate continues between the Democrats and Republicans. Failure for a deal to be reached could undermine the US economic recovery. Whilst the two sides are expected to eventually cross the line, timing is everything. The longer it takes the more damage to the economy. The US Dollar is back under pressure after two straight days of gains.

Oil eases
After rallying 2.5% in the previous session and hitting a 5-month high, the price of oil is easing on Thursday, although it is still managing to hold onto the lion share of yesterday’s gains. Data this week has shown that oil inventories are falling, additionally US fuel demand data is also rising, hitting the highest level since March. The figures support the view that fuel demand is returning despite the ongoing pandemic. With supply and demand fundamentals offering support the price of oil could start gaining altitude if the markets start to expect a shortage in oil in the coming quarters.

Dax chart

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account