European stocks bounce back, dollar pushes higher

Stocks rebound but flat across the week

European stocks are rebounding on Friday after Covid inspired losses from the previous session. Instead, corporate updates and Eurozone inflation have taken centre stage.

Investors are upbeat as they look to the start of the quarterly earnings season. Numbers are expected to show an improvement as businesses across the continent reopened following the pandemic.

Today’s move higher comes following steep losses in the previous session as investors fretted about rising Covid cases. In many countries, vaccination rates still aren’t at levels where the threat of another lockdown can be avoided. As such, the Covid risk to the market still exists. Recent lockdowns in parts of Asia are serving as a reminder of that.

European stocks have seen a solid runup across the previous quarter, but the momentum behind the rally has stalled recently. Strong corporate earnings data could go some way to negating the lingering Covid concerns and to provide impetus to push indices to fresh all-time highs.

Looking ahead, US stocks are pointing to a mildly stronger start after a mixed close in the previous session. In fact, trading across the week has been a mixed picture as investors weigh up the Fed’s assurance of loose monetary policy against high and rising inflation.

Attention will be firmly on US retail sales data and Michigan consumer confidence for further clues over the health of the US economy. Expectations are for another contraction in retail sales after a disappointment last month, which could weigh on sentiment.

USD set for strong weekly gains

The US dollar is pushing higher, extending gains for a second straight session and is set to end the week over 0.5% higher. This would mark the strongest rally in the US dollar in over a month.

The greenback has found support across the week from safe-haven flows as Covid cases rise and from surging inflation prompting speculation that the Fed could move to tighten monetary policy sooner. Whilst Federal Reserve Chair Jerome Powell has tried hard to play down expectations of a move to tighten policy, the persistently higher inflation figures are making it hard for the Fed to convincingly defend a dovish stance.

The pound was putting in a more convincing performance than it has for most of the week, supported in part by a more hawkish tilt from the BoE. After above-target inflation and surging wages, BoE official Michael Saunders suggested that the central bank could need to act sooner to tighten monetary policy and rein in inflation.

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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