Europe rallies on impressive China, US data

European bourses are on the rise rounding off an upbeat week. Following all-time highs on Wall Street overnight and record Chinese quarterly economic expansion, stocks across Europe appear well supported heading towards the weekend.

Signs of strong economic recoveries in the world’s two largest economies is buoying demand for riskier assets globally and key levels are being breached across the board. The DAX trades at an all-time high whilst the FTSE has crossed the key 7000 levels, fairly apt in the week that the UK economy continued to reopen. 7000 was a level last seen around the pandemic crash. The more domestically focused FTSE250 has rallied to record levels boosted by travel and leisure stocks on reopening optimism.

Data revealed that the Chinese economy continues to spring back from the covid pandemic. First-quarter GDP leapt 18.3% year on year, which slightly undershot the 19% forecast but was still the fastest rate since records began.

The impressive data came hot on the heels of blowout US retail sales figures, strong jobless claims numbers and a solid start to US earnings season. Upbeat earnings in Europe are adding to the buoyant mood.

This week we have seen factors really line up, pointing to a robust economic recovery. At the same time, the Fed have reiterated its supportive stance and yields have declined across the week. This is a setup that favors further gains.

Looking ahead, US futures are pointing to a broadly upbeat start, with the S&P and Dow Jones aiming to attack new all-time highs. The tech-heavy Nasdaq is trading mildly lower in response to a rise in yields today. Investors will be looking towards US consumer confidence data which is expected to reach a pandemic high as stimulus checks and an improving labor market boost confidence. Even so, morale still remains around half of its pre-pandemic level.

Oil set for over 6% gains this week

Oil prices are consolidating around monthly highs and are on track to gain over 6% across week. An improved oil demand outlook combined with growing optimism surrounding strong economic recoveries in the world’s two largest economies has lifted oil prices across the week.

Blowout macro data from the US, signs of more cars on the road, plus record quarterly GDP growth in China support the higher oil demand outlook touted by the EIA and OPEC earlier in the week.

The reopening of the US economy has resulted in traffic levels rising in various states and this is before the US driving season even gets underway. In the latest sign of the gasoline comeback, miles driven on US highways are higher than at the same time in 2019 boding well for a robust petrol demand in the key June – August period.

Optimism surrounding the economic recovery is overshadowing the worsening covid picture in the likes of India and Europe.

DXY steady, GBP declines on Brexit concerns

The FX markets are fairly subdued on the final day of the week.

The US Dollar is ticking a few pips higher, tracing treasury yields northwards. Despite the blowout US data in the previous session the greenback is still on track to lose ground across the week as it continues to trade around a 4 week low.

The Euro has edged a few pips higher and is on track for gains across the week as the covid vaccine picture could be turning a corner on the continent. Germany expects 20% of the population to be vaccinated by the end of the month.

The Pound is under pressure, trading below 1.3750 and at session lows. The UK economy continues to benefit from the reopening, with the removal of more restrictions this week. However, the Pound has struggled to find demand this week; this is because the reopening optimism is mostly priced in. Brexit concerns, particularly surrounding the Northern Ireland border, in addition to Scottish Independence calls are dampening the mood for Sterling.

Gold looks ripe for further gains

Gold surged high in the previous session and is consolidating those gains today as geopolitics return to the spotlight. Geopolitics are back with a bang after the US imposed sweeping sanctions on Russia move which drove investors in search of the precious metal for its safe haven properties.

Falling bond yields across the week have also underpinned gold, which is on track to book over 1% gains across the week. Whilst treasury yields are slightly higher today, capping gains in gold, they remain below 1.60% and at levels last seen in early March, before the run higher. It would appear that the bond market is finally buying into the Fed’s low for longer verse which would be supportive of non-yielding gold.

Gold is currently testing strong resistance at USD1760, supporting the formation of a double bottom reversal pattern from the USD1677 low. The setup points to further gain near term and any move lower could be considered a buying opportunity.