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US and European markets rally on Tuesday, USD continues its current momentum trend versus its main peers

Feb 3 • Market Commentaries • 1552 Views • Comments Off on US and European markets rally on Tuesday, USD continues its current momentum trend versus its main peers

European markets rallied from the London open during Tuesday’s sessions. The latest GDP figures for the Eurozone and individual countries provided investor optimism that if the COVID-19 vaccine rollouts are successful, growth will quickly re-appear.

GDP for the Euro Area beat forecasts coming in at -0.7% for Q2 2020 after a revision for Q3 revealed a worse figure than previously recorded at 12.4%. Annually 2020 GDP came in at -5.1%.

Because of the bullish GDP data and improved vaccine optimism, the DAX rose by 1.56%, the CAC by 1.86% and the UK FTSE 100 by 0.78%. The euro failed to follow the equity indices lead, at 20:45 UK time EUR/USD traded down -0.29% on the day in a bearish daily trend fixed between S1 and S2. Versus GBP, JPY and GBP the single bloc currency also sold off during the day’s sessions.

Optimism on display from US investors and traders

Equity indices also rallied in the United States on Tuesday’s New York session. Investors are anticipating strong earnings results from Alphabet (Google) and Amazon. The coronavirus relief package is close to getting agreed. Meanwhile, the rollout of the COVID-19 vaccines is beginning to get organised and gather speed.

The IBD/TIPP Economic Optimism Index in the US rose by 1.8 points to 51.9 in February 2021, a high not seen since October, as vaccinations pick up speed and Covid cases/ deaths appear to be falling from the peak. The US economy’s six-month outlook jumped to 49.5 from 47.2, while the federal policies subindex rose to 49.7 from 46.6.

At the close of Tuesday’s trading on Wall Street the DJIA finished up 1.57% the SPX also closed 1.57% up, while the NASDAQ ended 1.56% up. The furore surrounding GameStop has evaporated, the stock plunged over 40% on Monday, February 1 and ended the day down -59.85% on Tuesday.

The short squeeze of silver and GameStop gets squashed

GameStop stock has crumbled by -82% from peak to trough over two days leaving many amateur bandwagon investors licking their wounds. Silver, another security which was supposedly the subject of smart inexperienced investors causing shorts to get squeezed, fell by -8.21% on the day, after rising by over 6% on Monday and printing an eight-year high. Silver is back to the level of January 29. Gold also fell ending the day down -1.25%.

Oil continued the bullish run-up witnessed during 2021. Since the start of the year, the commodity has risen from approximately $48 per barrel. It was trading over $54 a barrel on Tuesday up 2.43% on the day while breaching R2 on the way up.

Economic calendar events to carefully monitor during Wednesday, February 3

European equity markets, the euro and sterling may come under pressure and scrutiny during Wednesday’s morning session when the latest IHS Markit services PMIs get published. Euro Area PMIs are forecast to remain relatively close to December’s levels.

In contrast, Reuters forecast the services PMI for the UK will come in at 38.8, falling from 49.4. As an economy, 80% reliant on services, retail, and the consumer such a lousy UK metric could negatively impact the FTSE 100 and sterling immediately.

The prediction is for EA inflation to show a year-on-year rise to 0.3% from -0.3% previously, with January’s figure expected to rise by 0.5%. The inflation data could affect the price of EUR versus its peers if analysts judge the ECB have less reason to adjust the interest rate or add more monetary stimulus.

In the US the ISM non-manufacturing PMI should come in at 57, while the Markit services PMI should rise by close on 3 points to 57.5. Both readings should be bullish for equity indices. The latest ADP private payroll data is forecast to show an additional 50K jobs added in January, improving from the -123K jobs lost in December. Late evening five Federal Reserve officials deliver speeches, analysts will carefully monitor the narrative for any forward guidance clues of a change in monetary policy.

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