May 26, 2020

European Equity Markets Roar

European Equity Markets Roar

European markets are trading higher as investors welcome another positive economic reading out of Europe. The German GFK consumer climate data printed a reading that not only bested the previous number but which also beat the forecast. The actual number came in at -18.9; the forecast was -19.1 while the previous reading was -23.1. 

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US futures spiked higher because of renewed investor optimism is back among investors. All hopes are pinned–once again–on vaccine news, although this time the potential savior is not Moderna, but Novavax.

The market has decided to ignore the flares of geopolitical tension, such as unrest in Hong Kong over Chinese policy changes. The reaction of the global equity markets to vaccine news is nothing short of any circus.

While we are still very early in the vaccine development process, the market reaction to any news is like we already have a vaccine. Of course, it is also true that the markets will roar like there is no tomorrow if we do find a possible solution for Coronavirus. The bullishness of the market points to investor belief that a potential vaccine may be available as soon as the end of this year, if not earlier.

Another critical factor driving positive sentiment among market players is the macroeconomic data which hints at a U-turn after its massive plunge. As more economies have started to open, this has improved the consumer and business sentiment.

For instance, the German IFO report released yesterday beat expectations, encouraging investors that the worst is behind us, especially in terms of economic numbers.

Obviously, we are still not out of the woods, and the jury is still out in terms of the pandemic’s long-term economic impact and the possible recovery from here.

The looming danger for equity markets is the US Senate’s potential sanctions against China because of new security laws. As mentioned before, this will only heighten the tensions between the two major economies, and the timing of this cannot be any worse.

But given the fact that the US elections are just around the corner, Donald Trump is determined to show that he is going to stand tough against China despite the cost. Chinese-American relations are likely to remain the significant focal point among investors in the coming weeks and months.

The UK’s FTSE 100 index, which was closed yesterday due to a bank holiday, is projected to see substantial gains today as the prime minister, Boris Johnson, outlined plans to ease the coronavirus lockdown.

Street markets and car dealerships will be allowed to open from next week, and other non-essential retailers could resume their business activity from June 15th. Clearly, Boris has followed the blueprint from other countries when it comes to relaxing the lockdown measures.

In terms of the economic docket, we have the US consumer confidence data due later today. The forecast is 87.1, while the previous reading was 86.9. A positive figure is likely to improve the sentiment further and could provide an additional boost for the US equity markets.

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