Accelerating business activity and strong earnings help Europe rebound

After steep losses in the previous session, European bourses are flying higher today, helped by strong earnings and accelerating business activity in the region.

Yesterday’s sell-off was just the tonic to fire up the bulls, who had been complacent with stocks hovering around all-time highs. Tuesday’s declines served as a reminder that valuations are lofty. However, today’s strong corporate updates and upbeat PMI data are supportive of further gains. The EuroStoxx trades +1.3%, its best one-day rally in two months.

Eurozone composite PMI data came in at 53.8 in April, ahead of the preliminary 53.7 reading and up from March’s 53.2. Meanwhile, the service sector moved back into expansionary territory in April despite the ongoing lockdown in parts of Europe. The services PMI printed at 50.5, ahead of the 50.3 preliminary reading and up from 49.5 recorded in March. The level 50 separates expansion from contraction.

Corporate earnings gave investors further reason to cheer with big names such as Deutsche Post and Hugo Boss posting impressive numbers.

While the Dax is leading the charge higher, the FTSE is giving it a good run for its money. The UK index has retaken the key 7000 level, boosted by heavyweight banks and miners.

The reopening trade is presenting itself in the commodity space. Commodities such as base metals and oil are surging higher on rising demand expectations. Copper has passed the key USD10,000 psychological level. Rising commodity prices are particularly beneficial for the FTSE, which has heavyweight oil and miners’ sectors.

US futures are pointing to a stronger start after steep tech-led losses in the previous session. Investors sold out of high-growth tech stocks on the Janet Yellen-inspired expectation of higher interest rates, even though earning season has been supportive of these high valuations. Yesterday’s moves proved the rotation out of growth and into value still has room to run.

Looking ahead, there is plenty of data such as ADP employment numbers and the ISM services PMI to guide the market ahead of Friday’s closely-watched non-farm payroll report.

US dollar rises; data on tap

After a weaker start, the US dollar is on the rise. Investors continue to weigh up comments from US Treasury Secretary Janet Yellen overnight after she hinted that an interest rate increase could be needed to prevent the US economy from overheating before backtracking. While Fed Kashkari poured cold water on tighter monetary policy expectations, there is often no smoke without fire.

There is plenty of data ahead to keep the markets focused. US ADP Employment numbers are expected to show a huge increase of 872,000 new private-sector jobs in April, up from 517,000 reported in March.

ISM services PMI is expected to show an acceleration from the already elevated 63.7 level recorded in March, while the employment component is also considered a lead indicator towards Friday’s NFP.

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