European stocks trade broadly higher, US banks earnings up next

European stocks are broadly advancing on Wednesday after a largely positive handover from Wall Street. A less-than-expected inflation overshoot in the US calmed inflation outlook expectations and is unlikely to prompt the Fed to tighten policy. Treasury yields fell as low at 1.61% giving tech stocks the upper hand.

As inflation fears ease in the world’s largest economy, the mood in the global market has improved, overshadowing Covid vaccine concerns. European markets are shrugging off worries that the vaccine rollout programme could be hindered further by blood clotting issues in the Johnson & Johnson drug. Similar problems with the AstraZeneca vaccine are already slowing the vaccine rollout.

However, the forward-looking markets are focusing on economies reopening and the positive impact this will have on companies. Giving investors a taste of what is to come, LVMH reported an impressive start to 2021 as US and Chinese shoppers hit the stores in droves. The luxury retail sector is a notable outperformer in Europe.

Looking ahead, US bank earnings will be in focus. After a brutal 2020, the 2021 outlook is looking increasingly bullish for the sector as the US economic recovery becomes more established. Earnings come against a backdrop of rising expectations for a strong US economic recovery, optimism which has already driven the rally in banks’ share price to outperform the broader market two-fold. The narrative has changed from last year’s if-and-when the recovery takes hold, to the current question of how long will the expansion run?

Wells Fargo, Goldman Sachs and JP Morgan are due to report ahead of the market open today. Bank of America and Citigroup and expected to report earnings tomorrow.

Dollar falls to three-week low

Easing inflation fears and lower treasury yields are keeping the US dollar under pressure for a third consecutive session. The US dollar trades at a three-week low following the release of US inflation data yesterday.

CPI numbers revealed that consumer prices rose 0.6% in March compared to the previous month. This was ahead of the 0.5% forecast and the largest gain in more than eight years. However, the market has been bracing itself for a much sharper rise in inflation owing to massive fiscal stimulus, loose monetary policy and a swift vaccine rollout.

Soothing words from Fed Chair Powell, who has spoken several times over recent weeks, have also helped keep inflation expectations and concerns over the Fed tightening policy in check.

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