European stocks off session highs as US futures point to further losses

After steep losses in the previous session and a weak handover from Wall Street, European bourses are advancing on Thursday. Upbeat earnings and signs of the third Covid wave easing on the continent are bringing a more promising tone to the markets. Although, softer US futures are pulling European indices off their highs heading towards Wall Street’s open.

Yesterday, the minutes from the April FOMC meeting revived taper jitters. The minutes revealed that Fed policymakers were ready to start considering the tapering of asset purchases over the coming months, largely confirming market fears. In the same breath, tapering comments were somewhat unexpected given the constant reiteration from the Fed of an accommodative stance for the foreseeable future. The move surprised the market, treasury yields bounded higher, the greenback rallied, and equities declined. These moves ran out of steam overnight.

The more upbeat tone in Europe comes as authorities across the region are easing pandemic restrictions due to a falling number of Covid cases and rising vaccine rates. ECB Governor Christine Lagarde noted the improving Covid picture in Europe while insisting that monetary and fiscal support shouldn’t be withdrawn too soon. CPI data yesterday highlighted that surging inflation is not a problem for the bloc, giving the central bank more wiggle room regarding policy than across the pond. Europe could potentially sit in that sweet spot of re-opening growth and supportive policy for longer.

Jobless claims coming up

The economic calendar is fairly empty in Europe. Attention will turn to US jobless claims due later. Jobless claims are expected to show continued improvement in the US labour market. 450K initial claims are expected, down from 473k last week and a new pandemic low. Last week’s strong reading eased labour market shortage concerns, which could put upward pressure on wages. The last thing the US economy needs right now is more inflationary pressure. As a result, stocks rallied. Market participants will be watching these figures closely again today. A strong print could propel stocks higher. However, any signs of weakness could fuel rising inflation concerns and pull stocks sharply lower.

FX – Dollar pares gain, AUD/USD rises post jobs report

After strong gains in the previous session, the US dollar is easing lower. The Fed indicating their readiness to talk taper going forwards boosted the greenback and could put a floor under the currency, which has been under pressure since the start of the year. However, the minutes don’t appear to have sparked a reversal in trend.

The Australian dollar is best capitalising on USD weakness, following an upbeat Australian labour market report. The jobless rate fell for a sixth straight month and hit its lowest level since April 2020 at 5.5%. However, it wasn’t all good news, with employment declining 30,600 against a 15,000 expected rise.

AUD/USD currently trades around 0.7740 caught between its 20 & 50 SMA on the daily chart and awaiting its next catalyst, most likely from US jobless claims later today.

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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