09 March 2021

Dax Hits Record High Amid Rally in European Stocks

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News shaping
the markets today

     

What’s happening: European stocks recorded sharp gains on Monday, with global investors monitoring the progress on the highly anticipated US stimulus package and the rising US treasury bond yields.

What happened: Shares of banks and automakers led the rally in European markets on Monday as investors became bullish on stocks that are poised to benefit from a solid economic rebound.

European stocks came into focus as the rise in US treasury bond yields drove investor interest away from American growth stocks.

Why it matters: Markets globally were buoyed by news of the US Senate passing the $1.9 trillion stimulus bill on Saturday. President Joe Biden is expected to sign the bill into law before the expiration of the previous unemployment aid programs on March 14.

Investors became a little wary with a further rise in US bond yields, which fuelled concerns that the Fed may consider tightening its monetary policy. However, even as the benchmark 10-year Treasury yield climbed above the 1.6% level on Monday, investors continued to favour European stocks, which are less weighted towards growth than American stocks.

Moreover, comments from billionaire hedge fund manager David Tepper further propelled markets. The founder of Appaloosa Management said in an interview with CNBC, “Basically I think rates have temporarily made the most of the move and should be more stable in the next few months, which makes it safer to be in stocks for now.”

Positive economic data also lifted market sentiment. The ifo’s index for industrial production expectations rose to 20.7 in February, from January’s reading of 9.4. The index indicated an improvement in Germany’s manufacturing sector for the third consecutive month in February, with automakers planning to ramp up production.

The pan-European STOXX 600 index added 2.22% on Monday, notching its strongest single-session performance since early November. The index was boosted by the banking sector surging a whopping 3.7% to a new one-year high. Shares of automakers and insurers also climbed around 3%.

The German DAX 30 index jumped 3.3% on Monday, hitting a fresh intraday high. London’s FTSE 100 gained 1.3%, while the French 40 added 2.1%.

What to watch: Markets will keep an eye on the European Central Bank’s meeting scheduled for later this week, which will throw light on whether the policymakers have agreed to accelerate the pace of emergency bond purchases.

Investors also await economic reports on employment change and GDP growth rate from the Eurozone. The number of employed persons in the Eurozone is expected to decline 2% year-over-year in the three months to December 2020, following a 2.3% decline in the previous quarter. The Eurozone economy is projected to contract 5% year-over-year in the fourth quarter, following a 4.3% decline in the prior period.

The Markets Today

     

Crude oil will be in focus today, ahead of the API’s (American Petroleum Institute) report on crude inventories.

Context: Oil prices traded higher on Tuesday, amid optimism around a rebound in the global economy.

Details: Brent crude prices jumped past the $71 per barrel psychological barrier on Monday, following an attack on Saudi Arabia’s oil facilities. Yemen's Houthi forces took responsibility for the attack. Meanwhile, Riyadh said there were no casualties or loss of property reported.

The attacks came after the OPEC+ (Organization of the Petroleum Exporting Countries and their allies) announced plans last week to stick with their production cuts for April despite an increase in crude prices.

Oil prices also responded to the US Senate passing President Joe Biden's proposed $1.9 trillion covid-19 aid package during the weekend. Investors remain bullish about the stimulus package driving a strong recovery in the US.

However, gains were short-lived on Monday. Crude prices retreated from the high levels and closed the session lower. Brent crude for May delivery dropped 1.6% to close at $68.24 per barrel, while benchmark US crude oil for April delivery shed 1.6% to reach $65.05 a barrel.

Crude prices rebounded slightly this morning, as traders remained focussed on the prospects of a sharp economic rebound on news of some decline in global covid-19 cases and the rollout of vaccines.

What to watch: Markets await data on crude inventories from the API today. US crude oil stockpiles grew 7.36 million barrels in the week ended February 26, following a 1.03 million rise in the earlier week.

Covid-19 remain a top concern for markets, with total cases surpassing 117.1 million globally.

Other Markets: US indices closed mixed on Monday, with the Nasdaq 100 and S&P 500 down by 2.92% and 0.54%, respectively. The Dow Jones index bucked the trend and added 0.97%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s payroll employment, Germany’s balance of trade and current account balance, Italy's industrial production, South Africa's GDP growth rate and SACCI business confidence index, Mexico’s inflation rate as well as the US NFIB small business optimism index and Redbook Index.

 

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