European bourses rise on recovery optimism, FTSE lags ahead of BoE

European stocks are pushing firmly higher amid optimism surrounding the economic recovery and as investors look ahead to the Bank of England rate decision.

The German Dax closed 1.1% lower on Wednesday at 15,450. However, the index is rebounding today, having found its mojo as business confidence soars. The closely-watched IFO business climate index rose to 104 in June, up from 102.9 in May, ahead of the 103.6 increase forecast. The strong data comes as the third wave of Covid receded and pandemic restrictions were lifted.

The data also comes following yesterday’s upbeat PMI numbers and adds to evidence that the German economy is experiencing a broad-based and robust recovery. Moreover, optimism surrounding the recovery is overshadowing any concerns surrounding supply-chain issues, which have also been reflected in recent data.

The FTSE has edged higher in early trade, although lags behind its European peers as investors sit on their hands ahead of the BoE rate announcement shortly.

What to expect from the BoE?

The BoE is not expected to adjust monetary policy, keeping the interest rate steady at the historically low 0.1% and QE at GBP875 billion. The meeting comes as the economic picture in the UK improves. PMIs show strong economic activity, unemployment has ticked lower to 4.8% and inflation is above target at 2.1%.

Today’s big question is whether policymakers at the BoE will adopt a slightly more hawkish stance in light of above-target inflation and rising inflationary pressures. Or, will rising delta Covid cases and the looming end of furlough this autumn keep the BoE in a more cautious mood?

Attention will be on the MPC vote to continue QE. In May, the vote was eight to one. However, should more policymakers dissent, the pound – as well as banking stocks – could get a boost.

Travel stocks are also in focus as the British government is expected to set out any changes to its traffic-light system.

FX – USD steadies ahead of jobless claims, durable goods orders and Fed speakers

The US dollar is holding steady in quiet trade as investors weigh up the Fed’s surprise hawkish shift last week. While the greenback found support from two hawkish Fed speakers overnight, Chair Jerome Powell’s more dovish message was still fresh in the minds of investors.

Amid a lack of clarity over the direction of inflation, investors will need to await tomorrow’s PCE numbers. In the meantime, attention will now shift to US jobless claims and durable goods data ahead of more Fed speakers. Initial jobless claims are expected to resume the downtrend after an unexpected jump last week. Any sign of further weakness in the labour market recovery could drag the US dollar lower.

For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/

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