Europe rises after record highs on Wall Street

European stocks are pushing higher on Tuesday, following on from record highs reached on Wall Street, but a more subdued session in Asia as Covid cases rise.

The Nasdaq and the S&P closed at record highs on Monday. A rally in Facebook and tech stocks offset weakness in the energy sector. Facebook led the charge after a federal court dismissed the Federal Trade Commission’s antitrust action against the social media giant. With Facebook no longer facing the risk of a forced sale of WhatsApp and Instagram, its future is suddenly looking much rosier. The stock jumped 4%, taking it into the USD1 trillion club.

Housebuilders are leading the rise on the FTSE after data revealed a surge in house prices across the past year. The nationwide house price index rose 13.4% in June compared to the same period last year, the largest jump in house prices in 16 years.

The government’s stamp duty holiday combined with people reassessing their space needs following the pandemic lockdowns has sent demand and house prices skyrocketing. As a result, housebuilders are firmly in demand. The question is, what happens next?

So far, the market continues to show significant momentum, suggesting that underlying demand could, in fact, remain solid in the near term even as the tax break is reversed. With interest rates historically low and consumer confidence rebounding, the near-term outlook remains relatively upbeat. Looking out beyond Autumn, the outlook is less clear, particularly given the end of the furlough scheme.

The Dax is outperforming in Europe as investors look ahead to German CPI data. Expectations are for consumer prices to ease slightly in June to 2.3% YoY, down from 2.5% in May. On a monthly basis, inflation is expected to rise 0.4%, down from 0.5%. While this would still be above the Bundesbank’s 2% target, it would also be a step in the right direction to returning to the target level.

US dollar lifted by safe-haven flows

The US dollar is edging higher as Delta variant fears dominate the FX markets, boosting safe-haven flows into the greenback. The US dollar index is extending gains from the previous session after receiving a boost from surging Covid cases in Asia. Australia, which had been an exemplary country in its handling of the pandemic, has locked down several cities while Malaysia and Thailand also extended lockdown conditions.

Despite safe have inflows, the US dollar trades within a tight range as investors look ahead to Friday’s non-farm payroll report. After several months of weaker numbers, investors will be hoping that dynamics in the labour market will start to change. However, given unemployment benefits are high, for some workers, it doesn’t make sense to return to the workforce yet. Until those dynamic changes, headline jobs data could remain disappointing.

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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