Stocks struggle as COVID-19 cloud looms over US recovery

Improved PMI data has done little to lift the FTSE 100, with ongoing fears around the US growth path proving a hinderance for sentiment.  

• Slow start in Europe as markets struggle to find direction.

• Dollar weakening, as US Covid cases put it at risk.

• German retail sales outperforms, while PMI figures improve.

A relatively quiet start to the day in Europe highlights the ongoing tug-of-war between those optimistic of the benefits that come with lockdown easing, playing off against fears of further restrictive measures if cases pick up in response. The US remains the key hotspot for investors, with Florida and Texas potentially the first of many states that will require another a second bout of restrictions if the virus is to be brought under control. While traders have largely targeted US shares given the expectation of huge stimulus measures from Trump and Powell, we are now likely to see European markets outperform as a united front on financial support bolsters the impressive virus response seen over recent months.  

The dollar is on the back foot in early trade today, with the dollar index turning lower as we head towards a key period for US economic data. The recovery seen throughout China provides us with a template for potential future growth in the Western world, yet the inability to properly bring down Covid cases in the US does put a dampener on the pathway for growth. The improvements within Chinese business has been evident throughout the PMI data, with subsequent months of expansion in manufacturing highlighted overnight in the Caixin PMI survey. However, Europe remains some way behind, with only France able to show expansion in manufacturing as the likes of Spain, Italy, Germany, and the wider eurozone all continuing to see the sector contract. The German retail sales surge in May should perhaps take few by surprise, as it represents the latest in a line of nations to see a spike in consumer activity. However, the most impressive element behind the retail sales data is that the nation now exhibits higher sales than the prior year, although there is no doubt that the high street will continue to flounder behind online shopping as fears keep many away from bricks and mortar retailers.  

Ahead of the open we expect the Dow Jones to open 27 points lower, at 25,786.