European stocks rise on strong earnings, US Retail Sales and bank numbers in focus

European stocks are charging higher after the US earning season kicked off on the right foot. US banks are often considered a proxy for the broader economy. As a result, their earnings are strong drivers of sentiment.

The upbeat numbers served to reinforce expectations of a strong US economic recovery. If the world’s largest economy is performing well, this is good news for the global economy and risk sentiment.

The European economic calendar is quiet this morning, with in-line inflation data from Germany providing little impetus.

Positive earnings in Europe have given markets a boost, overshadowing concerns over the Covid vaccine rollout on the continent.

The FTSE is outperforming its European peers, boosted by heavyweight miners, which are tracing metal prices higher. A weaker US dollar combined with rising expectations of strong Chinese economic expansion in the first quarter are keeping metal prices elevated. Chinese GDP data is due on Friday with 18.9% year-on-year growth pencilled in.

US futures are pointing to a stronger start on the open in what is expected to be a busy session. The US banks that reported yesterday provided a positive cue for more of the same today, with Bank of America and Citigroup under the spotlight.

Investors will also be watching US retail sales data for March, which is expected to show a leap in consumer spending. Forecasts are for a 6.3% increase in sales month-on-month, up from a 3.5% decline in February. Improving weather conditions plus the disbursement of stimulus cheques are factors expected to ramp up retail sales. Treasury yields here will be key – a surge in sales could send yields higher and actually drag on stocks. This data will test the extent to which the markets have bought into the Fed’s dovish mantra.

US dollar eases, AUD rises on solid job market

The US dollar is holding steady after three consecutive days of losses. More soothing commentary from Federal Reserve Chair Jerome Powell yesterday served to cement the idea that the Fed will remain accommodative until the economy reaches its goals. After frequent speeches by Powell and other Fed policymakers supporting the US central bank’s accommodative stance, the markets appear to be buying into the low-rates-for-longer tune.

Both the pound and the euro are trading in a muted fashion amid a lack of fresh catalysts.

German inflation data came in as expected with a 1.7% year-on-year increase in March, up from 1.4% in February. On a monthly basis, inflation increased 0.5% in March, down from 0.7%, as the ongoing lockdown keeps price increases restricted.

The Australian dollar is putting in a more convincing performance, up 0.4%, aided by the broad upbeat mood in the global markets, and an impressive jobs report. Australian job creation beat forecasts in March and unemployment declined to a one-year low. The outperformance of the Australian job market is driving demand for the Aussie dollar.

Oil consolidates around monthly top

After strong gains across the week so far, oil bulls are pausing for breath. The price of oil is consolidating around the monthly high. It trades up over 5% across the week.

Better-than-expected stockpile data – both EIA and API – a weaker US dollar and optimism surrounding more energy demand helped oil book its strongest daily gains since late March on Wednesday. Both benchmarks for oil rose over 4%. Following such as upbeat performance, some consolidation around these levels is not so surprising.

In the previous session, both EIA and OPEC upgraded their forecasts for world oil demand growth this year. A double-whammy of upwardly-revised oil demand outlooks is pretty hard to ignore.

Even so, gains are likely to remain capped as OPEC looks set to ease production cuts from next month.

Gold capitalises on weaker US dollar ahead of retail sales

While gold failed to capitalize on the weaker US dollar yesterday, the precious metal was not going to make the same mistake today. Gold settled -0.45% lower on Wednesday, despite a 0.25% decline in the value of the US dollar. A weaker greenback often boosts demand for USD-denominated gold, making it cheaper for buyers with other currencies.

Today, despite a broad risk-on mood in the market and thanks to a weaker US dollar, gold is advancing. The precious metal has pushed over its 200 EMA on the four-hour chart as it looks to retake 1750.

Attention will now turn to US retail sales for further clues. A strong reading implies strengthening domestic consumption and a potential rise in prices – good news for the inflation hedge gold. Until then, gold is expected to remain at the mercy of US dollar dynamics.