23 March 2021

European Stocks Edge Higher Even as Lira Plummets

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News shaping
the markets today

     

What’s happening: European shares ended slightly higher on Monday, with banking stocks recording losses following a massive downturn in the Turkish lira.

What happened: The lira tumbled sharply, falling more than 8% versus the US dollar, after the Turkish President announced to replace the head of the country’s central bank.

Although the stocks of Turkey-exposed European companies came under pressure and despite another wave of covid-19 infections grabbing the headlines, the European equity market inched higher on Monday.

Why it matters: European equities had fallen sharply on Friday, retreating from their one-year high levels, amid increased restrictions in several EU countries and concerns around a slowdown in the pace of covid-19 vaccinations.

Investors remained on edge on talks of the EU blocking vaccine exports to the UK and the British government considering retaliatory moves against the bloc. Meanwhile, Britain’s social care minister Helen Whately cited rising covid-19 infections to recommended against visiting Europe, just ahead of the summer holiday booking season.

The travel & leisure sector lost 0.7% on Monday, as Germany extended lockdown restrictions into a fifth month. Several travel-related shares also recorded losses, with British Airways-owner IAG, Ryanair Holdings, Lufthansa and TUI falling between 2% and 4.5%.

To add to investor concerns, the Turkish lira became highly volatile and plummeted after President Recep Tayyip Erdogan unexpectedly replaced the central bank governor following a sharp rise in interest rates.

European banks that have exposure to lira, including France’s BNP Paribas, Spain’s BBVA and Italy’s UniCredit, traded lower on Monday.

Market sentiment improved somewhat, with positive economic data released by the Eurozone. The region’s current account surplus came in at €5.8 billion for January, versus a €8.2 billion deficit in the same month last year. However, the latest reading still missed the consensus estimates of a €34.3 billion surplus.

The pan-European STOXX 600 index gained 0.2%, after recording losses earlier in the session. Automobile shares gained for a fifth session in the last six sessions. London’s FTSE 100 and Germany’s DAX 30 rose by 0.26% and 0.25%, respectively, while the French 40 lost 0.49%.

What to watch: With no major economic reports scheduled for release today from the Eurozone, markets will focus on rising covid-19 cases and the pace of vaccinations in the region.

Investors also await minutes from the European Central Bank’s non-monetary policy meeting, due on Wednesday.

The Markets Today

     

Gold will be in focus today, after the yellow metal closed lower on Monday.

Context: Gold futures fell on Monday, amid some profit taking after the safe-haven metal recorded its highest closing since late February.

Details: Gold came under pressure with an increase in investor risk appetite, which triggered a rally in US technology stocks.

With Turkey being a major gold buyer, the steep decline in the lira negatively impacted demand and led to losses for the yellow metal. According to the World Gold Council’s report in January, Turkey was the biggest annual buyer of the yellow metal in 2020, with the country adding as much as 134.5 metric tons to its gold reserves.

The bullion started the week on a lower note despite a pullback in US Treasury yields and the greenback. The yield on 10-year Treasury notes fell to around 1.679% on Monday, from Friday’s 1.729%. The US dollar index, which measures the currency’s performance versus a basket of six major rivals, also slipped 0.2% on Monday.

Market experts said the yellow metal came under pressure with investors favouring equities due to some stabilisation in bond yields.

Gold for April delivery fell 0.2% to end at $1,738.10 an ounce on Monday, after adding 1.3% last week. May silver declined 2.1% to close at $25.77 an ounce, following a 1.5% weekly surge.

What to watch: Markets will keep an eye on the US dollar and Treasury yields, which will impact gold prices in the near term.

Rising covid-19 cases remain one of the top concerns for markets, with total global infections surging past 123.6 million.

Other Markets: US indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.32%, 0.70% and 1.71%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UK’s claimant count change, employment change, unemployment rate and CBI industrial trends orders, Italy's industrial new orders and industry sales, Brazil’s FGV consumer confidence and Central Bank of Brazil’s meeting minutes, Argentina’s gross domestic product, as well as the US current account, Redbook index, new home sales, Richmond Fed manufacturing index and API’s crude oil stocks.

 

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