EMEA Morning Briefing: Tech-Inspired U.S. Rally to Boost European Stocks

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April 28, 2022
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EMEA Morning Briefing: Tech-Inspired U.S. Rally to Boost European Stocks

EU Flash Estimate Inflation, GDP, M3; Germany GDP, Foreign Trade Prices indices; France GDP, CPI, PPI, Consumer Spending, Housing Starts; Italy GDP; UK Capital Issuance; updates from Clariant, Banco Bilbao Vizcaya Argentaria, BASF, MTU Aero Engines, Eni, Remy Cointreau, Safran, Caixabank, Bayer, Daimler, Continental, Sanofi, Intesa Sanpaolo, Galp Energia, Credit Suisse, Sopra Steria, Andritz, Proximus, Vonovia, NatWest, AstraZeneca, KPN, Signify, Danske Bank, Orsted, Impala Platinum, Pearson, Reckitt Benckiser, HSBC, Hikma Pharmaceuticals, Smurfit Kappa, Pearson, Admiral, ASML

Opening Call:

A strong tech-led rally on Wall Street will likely lift European shares Friday. In Asia, stocks were higher; the dollar and bond yields edged down; oil was mixed and gold prices were firmer again.


European stock futures were solidly higher early Friday, lifted by Wall Street’s tech-led rally, with Nasdaq closing up 3.1%.

Investors cheered a solid earnings report from Meta Platforms that showed resilience in the face of rising inflation. The Facebook owner’s stock rose 18%.

Traders said the stock market was poised for a rally following recent selloffs in tech stocks, including a big swoon earlier in April after Netflix earnings disappointed investors.

“We are seeing a market that’s beginning to perhaps show some fundamental strength, in the sense that earnings are now coming into play,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

However, U.S. futures were struggling for momentum Friday, after Amazon.com and Apple shares fell in after-hours trading following underwhelming earnings.

Read: Amazon to Cut Costs after Loss Sends Stock Careening Lower

Read: Apple Stock Swings to a Loss after Executives Warn of Billions in Added Costs


The dollar edged back slightly but remained around multiyear highs against the euro, the pound and the yen.

DBS Research said it was becoming uncomfortable with the dollar’s strength, noting that U.S. GDP growth was pulled lower by a record trade deficit. Fundamentally, record trade deficits, accompanied by 40-year high inflation rates and a flat bond yield curve, seldom bode well for any currency, said DBS Research’s senior FX strategist Philip Wee.

The pace of the dollar’s rise this year has surprised some analysts and investors and has already begun to reset expectations for the rest of the year.

“I am this week doubting my view that the dollar would give back some of its gains, and I am beginning to fear that we will have a stronger dollar for longer this year,” said Jane Foley, head of foreign-exchange strategy at Rabobank.

Goldman Sachs said the yen stands within the range of historical intervention levels and policymaker comments have signaled rising discomfort with the move weaker.

The yen crossed 130 to the dollar Thursday for the first time since April 2020. Policymakers have been focused on the negative effects of a weaker currency, which is no longer considered to be as much of a clear positive for the Japanese economy as it used to be, said Goldman’s Karen Reichgott Fishman.

More production has been shifted offshore over the past few decades, a weak yen is broadly viewed as a negative for business and the Kishida administration is focused on living standards, which are challenged by low real wages likely to remain depressed with rising inflation, reinforced by yen depreciation.

The Bank of England could undershoot the market’s interest rate rise expectations, potentially hurting sterling, said ING.

The increasingly cautious tone from BOE policymakers and a probable growth downgrade at next Thursday’s meeting suggest markets are overestimating the extent of rate rises for the rest of this year, said ING, adding that the BOE’s key rate is likely to end 2022 at 1.25% from 0.75% currently, as opposed to the 2.15% priced by the market.

“If and when that penny drops, GBP could take another large leg lower and GBP/USD may end up far closer to the 1.20 level than we had originally forecast.”


Treasury yields eased lower in Asia, after they had moved higher for a second straight session Thursday as traders largely brushed aside data showing the U.S. economy contracted for the first time since the pandemic began two years ago.

Also late Thursday, the Treasury yield curve flattened, with the spread between 2- and 10-year yields narrowing to 22 basis points in a market signal of concerns about the outlook further down the road.

The year-to-date run-up in Treasury yields comes as investors look for the Federal Reserve to move aggressively to raise interest rates and shrink its balance sheet to rein in inflation running at its highest level in more than four decades.

“The latest snapshots of economic data remind us of the volatile and complicated times in which we live,” said Mark Hamrick, senior economic analyst at Bankrate.com.

“The Federal Reserve is seen boosting interest rates as it focuses on historically high inflation, but will continue to watch closely.”


Oil prices were mixed in Asian trade after they had ended Thursday’s session with solid gains as a WSJ report said Germany was ready to stop buying Russian crude.

Read: Germany Drops Opposition to Embargo on Russian Oil

“The globe is in a mad scramble for energy supply as Russia, as many expected, is signaling that they will use its energy dominance over Europe as a weapon,” said Phil Flynn, analyst at Price Futures Group.

“The reverberations are being felt not only in European natural gas markets but even [in the U.S.] in products like gasoline but more acutely in diesel.”

Developments relating to China’s Covid-19 outbreaks will remain closely watched, as the country continues to fight against the virus, said SPI Asset Management. ANZ added that oil-product demand could remain subdued in China, the world’s largest oil importer, due to a rising number of Covid-19 cases.


Gold futures extended their gains despite the elevated dollar.

ANZ said the prospects of an intensifying energy crisis in Europe was enhancing gold’s safe-haven appeal. Meanwhile, Commerzbank said that central banks are likely to remain net buyers of gold this year, albeit on a lower level.

Copper prices were slightly higher too, supported by ongoing production disruptions at the Las Bambas copper mine in Peru.

Social unrest has caused the government of Peru to declare a state of emergency around the mine area, with discussions between mine operator MMG, the protesters, and the Peru government not yet succeeding, said ANZ, with the caveat that LME copper inventories have risen to a six-month high of 150.8 kilotons, a sign that the market tightness is beginning to ease.


As Europe Thirsts for Natural Gas, U.S., EU Signal Support for Long-Term Deals

As Russia moves to cut off natural gas supplies to parts of Europe, U.S. and European Union officials are indicating that they are more open to longer-term deals to ship American fuel across the Atlantic.

The EU and U.S. have pledged to expand LNG, or liquefied natural gas, exports to Europe through 2030. But the U.S. is already sending all it can to Europe, and industry officials say expanding volumes will require new, multibillion-dollar export terminals, which traditionally have required long-term contracts from buyers to line up financing.

U.S. GDP Falls 1.4% as Economy Shrinks for First Time Since Early in Pandemic

The U.S. economy shrank in the first quarter as supply disruptions weighed on output, but underlying strength in consumer and business spending suggested growth will soon resume.

The decline in U.S. gross domestic product at a 1.4% annual rate marked a sharp reversal from a 6.9% annual growth rate in the fourth quarter, the Commerce Department said Thursday. The first quarter was the weakest since spring 2020, when the Covid-19 pandemic and related shutdowns drove the U.S. economy into a deep-albeit short-recession.

U.S. Dollar Surges Amid Investor Jitters, Rising Yields

The U.S. dollar extended its rapid climb Thursday, reaching multiyear highs against the euro, the British pound and the yen.

The U.S. currency has been one of the few beneficiaries this year of a market battered by geopolitical fears and worries about the consequences of interest-rate increases from the Federal Reserve.

Germany Drops Opposition to Embargo on Russian Oil

BERLIN-Germany is now ready to stop buying Russian oil, clearing the way for a European Union ban on crude imports from Russia, government officials said.

Berlin had been one of the main opponents of sanctioning the EU’s oil-and-gas trade with Moscow.

U.K. Retail Vacancy Rate Fell in First-Quarter Amid Economic Reopening

The U.K.’s retail vacancy rate reduced in the first quarter of 2022, boosted by the reopening of the economy in full, the latest report by the British Retail Consortium said.

This was only the second quarter of falling vacancy rates since the first quarter of 2018, the report added.

German Inflation Hits 40-Year High

Germany’s annual rate of inflation has risen in April at a faster pace than in March, compared to forecasts of a deceleration and posting the highest reading since fall 1981, according to preliminary data released by German statistics office Destatis on Thursday.

Consumer prices rose 7.4% on year measured by national standards, against the 7.2% forecast by economists in a Wall Street Journal poll. They rose 7.8% on year by European Union harmonized standards, above economists’ forecast of 7.6%.

Biden Seeks New Aid for Ukraine as Russia Makes Slow Progress in Seizing East

President Biden sent Congress a $33 billion request to fund more weapons and provide longer-term economic assistance for Kyiv, as Russia’s military is gradually seizing more territory in Ukraine’s east, pushing south from the city of Izyum with the apparent aim of cutting off Ukrainian forces.