Recovery optimism sends Dax to record high

Dax, FTSE gain ground

European stocks are bounding higher on Tuesday, rallying to record levels on signs of economic recovery, even as the region battles with its third wave of Covid and attempts to ramp up its vaccine programme.

News that Germany plans to have 20% of its population vaccinated by the beginning of May has helped boost sentiment surrounding German stocks, which soared ahead to fresh all-time highs, firmly beyond the key 15,000 level. Investors are managing to look past the current rise in infections in the Eurozone’s largest economy, which prompted lockdown restrictions to be extended.

Eurozone Investor Sentiment data is expected to surge higher in April, hitting 13.1, up from 5.0 in March and well above the 6.7 forecast. Businesses are proving to be surprisingly optimistic regarding the re-opening of the economic bloc, despite the near-term challenges.

The FTSE is also putting in an impressive performance, trading 1% higher, boosted by a double whammy of good news. Not only did strong overnight China data boost commodity prices, lifting heavyweight miners, but British Prime Minister Boris Johnson also confirmed shops, hairdressers, and outside hospitality in the UK will re-open next Monday. The weaker pound is adding to the supportive climate for the FTSE.

Technically the outlook is encouraging for the FTSE after it finally broke out above the 6800 level, which has capped gains in the index across this year. A close above this key resistance-turned-support could see the bulls look back towards 6960 – the yearly high.

Looking ahead to the US open, US futures are pointing to a slightly downbeat open after the Dow Jones and the S&P 500 reached all-time highs in the previous session. The economic calendar is relatively quiet, with JOLTS job openings taking centre stage.

US dollar consolidates losses

The US dollar has steadied after experiencing its largest one-day decline in three weeks on Monday. Big players in the market cut their long positions at the start of the new quarter, following the greenback’s stellar run across the first three months of the year. The US dollar has seen a solid run-up tracing US treasury yields higher amid expectations of a faster economic recovery in the US. In March alone, the US dollar index surged 2.5% in its most significant monthly gain since 2016, so a serious bout of profit-taking isn’t that surprising.

The reflationary trade of the US versus other economies has helped drive the greenback higher. However, after hitting a five-month high, US dollar weakness could be a sign that trade is running out of steam.

The pound briefly pierced 1.39 before slipping back into the red even after Boris Johnson announced the next stage of re-opening the UK economy was still on track.

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