Upbeat Retail Sales help underpin European bourses, pound rallies on reopening optimism

European equities are attempting to push higher amid improving Eurozone retail sales and as investors look cautiously ahead to a busy week.

Eurozone retail sales rose 3% MoM in February, rebounding after an upwardly-revised -5.2% decline in January, ahead of expectations of a 1% increase. The improvement in retail sales was thanks to easing lockdown measures in some countries.

This is much needed good news for the region, which is experiencing a resurgence in Covid cases in some countries and a tightening of lockdown restrictions in its largest economies such as France and Germany.

The better than forecast data has given a slight lift to risk sentiment, sufficient to pull stocks into positive territory.

The FTSE is underperforming its peers in Europe owing to the stronger pound. Reopening optimism is boosting demand for sterling, resulting in an unfavourable exchange rate for those multinationals that dominate the FTSE 100.

Heavyweight banks were also under pressure, whilst miners traced commodity prices lower.

The FTSE 250 - the more domestically-focused index - was also down -0.5%, although it continues to hover around all-time highs as gyms, shops and pubs reopen today after three months of lockdown.

Looking ahead to the US open, futures are trading cautiously lower as investors digest Jerome Powell’s latest comments and brace themselves for the start of earnings season.

Over the weekend, Jerome Powell sounded upbeat about the prospects of the US economic recovery. However, he also warned that the recovery was at a critical junction as Covid risks remain.

Since the start of the month, the rotation into cyclicals and out of growth stocks has run out of steam. This could be a sign that the markets are getting more nervous about the reality of reopening the economy.

USD strength and pound rallies on reopening optimism

The USD dollar is kicking off the new week on the front foot. The upbeat economic outlook due to supportive measures from both the Federal Reserve and the Federal government, in addition to a swift vaccination drive, is keeping the US dollar in demand. The softer tone in global equity markets is offering further support to the greenback.

While there is no US data due today, the bond auctions will be closely eyed for any signs that demand is waning. A weak auction could boost yields once again.

Today the UK economy takes its next step along the path to easing lockdown restrictions. All shops will reopen, in addition to hairdressers, gyms and outside hospitality. Reopening optimism is boosting the pound after a steep selloff in the previous week. With Covid cases continuing to fall and vaccine numbers rising, the UK outlook is upbeat, which should keep the pound well supported over the coming weeks.

Gold looks to inflation data

Gold trades under pressure on Monday, extending losses from Friday, although it appears to lack strong follow-through. The firmer greenback is exerting pressure on the US dollar-denominated precious metal, making it more expensive for buyers with foreign currencies.

Federal Reserve Jerome Powell’s upbeat assessment of the US economy boosted the US dollar on Monday. Fed Chair Powell is optimistic that the US economy will make a strong recovery with increased growth providing more jobs. His comments reinforced expectations of a faster rebound from the pandemic, lifting the US dollar whilst dragging on gold.

Inflation expectations have been a central focus for the markets over the past few months. After data on Friday revealed a strong pick up in the producer price index, which measures inflation at a wholesale level, investors will be eyeing consumer price inflation, CPI data tomorrow closely.

Oil keeps an eye on Iran talks

After recording losses of 3.5% across the previous week, oil prices are holding steady on Monday. There have been no significant changes to fundamentals, with the bulls and the bears continuing to weigh up the resurgence of Covid and tighter lockdown restrictions in parts of Europe, India and South America against an expected strong US economic rebound and the prospect of OPEC releasing more oil into the markets from next month.

Also playing into the mix are talks between Iran and world powers over reviving the 2015 nuclear accord. These talks are important because progress towards an acceptable outcome would likely mean the OPEC member would be once again allowed to supply crude to the global market.

Talks continue on a positive note after Tuesday’s breakthrough, and full-scale talks at the level of foreign ministry deputies will recommence on Wednesday.