Eurozone contraction fails to stifle US tech-led rebound

Overnight earnings data from Facebook, Amazon, and Apple have helped stabilise market sentiment following recent declines. Meanwhile, European gains in the face of a sharp Q2 contraction highlight the focus on more current data.  

• FTSE 100 gains ground thanks to US tech outperformance.

• Growth continues to outstrip value stocks.

• Historic eurozone Q2 decline does little to dent market sentiment.

The FTSE 100 is on the rise this morning, with European stocks managing to catch some of the Nasdaq’s tail winds following a host of strong earnings releases overnight. Despite the partial gains seen in Europe this morning, we are clearly seeing a continuation of the growth outperformance as Nasdaq heads back in the direction of record highs following strong earnings numbers from Facebook, Amazon, and Apple. Throughout much of this crisis, the gains seen throughout US markets have primarily been driven by a handful of names. And with the US tech firms going from strength to strength, we are seeing yet another example of growth leaving behind value. 

The domestically-focused FTSE 250 index is underperforming the likes of the FTSE 100, with questions arising around the UK coronavirus recovery after the government imposed tighter restrictions on Manchester and Yorkshire. Meanwhile, mainland European markets have been understandably varied, as a sizeable Q2 contraction of -18.5% in Spain ensured underperformance for the IBEX. With markets still in the green despite a eurozone Q2 contraction of 12.1%, traders are clearly willing to discount any backwards looking data in favour of more current figures. Unfortunately the current outlook is gradually weakening as evident from yesterday’s initial and continuing jobless claims out of the US. It is evident that while some elements of the economy can operate in the absence of a vaccine, economic activity will be limited until the pharma sector produces a treatment or vaccine that allows people to move and spend freely once again.  

Ahead of the open we expect the Dow Jones to open 64 points higher, at 26,378.