Eurozone firing on all cylinders

Excellent economic data from the eurozone has boosted stock markets on the continent, but HSBC’s slump is keeping a lid on the FTSE 100.

-       Eurozone economy rebounds
-       HSBC’s rally gets its wings clipped
-       US traders return to their desks

In London the FTSE 100 is under some selling pressure, but across the Channel all is merry, as PMI readings point to a eurozone economy in a state of rude health. Overall eurozone growth in both manufacturing and services looks good, but with CPI figures still not showing much improvement the euro has seen fresh selling. This is more of a dollar strength story, as Fed policymakers start to comment on the possibility of a March rate hike, but with EURUSD in full retreat the way is clear for eurozone stock markets to keep rallying. Well, most eurozone stock markets anyway, as the CAC languishes with just a 0.1% gain as investors start to look askance at French assets as the polls continue to point towards a tightening race for the presidency. HSBC’s gloomy numbers have cast a pall over the entire UK banking sector, with the 6% drop in the bank’s shares knocking 35 points off the index. Today’s slump puts a decent dent in the rally in HSBC, which had seen the shares gain 70% as of yesterday, but it looks like some of the optimism here was a little misplaced.

US markets return to the fray today, with a focus on the PMI numbers this afternoon, plus speeches from Fed members Kashkari and Harker. While European markets have managed to keep the risk bandwagon rolling forward, it is the attitude of the American markets that will really matter. Goldman Sachs’ warning last night about ‘cognitive dissonance’ as earnings revisions fall even as the S&P 500 rallies is perhaps the canary in the coal-mine moment. The only question now is whether investors will take notice. Ahead of the open, we expect the Dow to start at 20,654, 30 points higher from Friday’s close.