Dax hits an all-time high, US yields rise

Following on from a record close on the Dow, equities across Europe are pushing higher, boosted by the prospect of a strong economic recovery in the US. The mood in the market is upbeat, surprisingly so given the third wave of Covid which is sweeping across the old continent.

Eurozone economic sentiment and French consumer confidence both came in significantly ahead of expectations, with the latter hitting its highest level since December.

Eurozone economic sentiment recorded 101 in March, up from 93.4 in February and ahead of the 96 expected.

The data, in line with the rising equities, point to market participants looking past the near-term Covid headwinds, instead, focusing on the prospect of the economies reopening. The market is in glass half full mode with regards to Covid. Even as cases continue to rise in the region and prospects of more curbs are on the table, market sentiment is buoyant, evident by the Dax hitting a fresh all-time high.

The fallout from the Archegos margin call appears to be contained, with banks across Europe once again on the rise after experiencing steep declines in the previous session.

Looking ahead to the US open, the futures are trading mixed. The Dow is set to extend gains, whilst the tech-heavy Nasdaq is pointing towards a weaker open. Rising yields are once again set to drive market direction, with the growth stocks’ valuations being called into question. Rotation into value looks set to be the trade of the day.

FX – Dollar rises on higher yields

As the markets gear up from President Biden’s spending plans yields are on the rise. The prospect of higher debt issuance has seen the bond bears return lifting yields in the 10-year treasury back above 1.70%, whilst boosting the buck.

Adding to the upbeat mood surrounding the US dollar is the pace of the US vaccine rollout plan. The vaccine drive has been nothing short of impressive. Some 90% of American adults will be eligible for a jab by April 19.

As a result of rising US yields and the stronger greenback, the US dollar reached a one-year high versus the Japanese yen.

The US dollar is also outperforming the virus-ravaged euro. The euro trades at a 4-month low versus the US dollar as rising Covid cases continue to rise on the old continent, amidst a slow vaccine rollout. The divergence in the outlook for the two regions is driving the pair lower.

Looking ahead German CPI will be in focus. Expectations are for a rise to 2% year on year, up from 1.6%. A strong reading could help to limit losses in the common currency.

EUR/USD is testing an important support level at USD1.1750. A breakthrough at this level could see the bears test USD1.1700.

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