The Dax is driving the load higher in Europe, after a strong close on Wall Street. A combination of M&A performance, optimistic data on IFO business sentiment and mitigation of U.S. inflation fears helped push the German stock market to a recent all-time high.
The German GDP reading revealed a downward revision to a -1.8% contract quarter-on-quarter in Q1, from -1.7% in the previous reading. However, this morning’s disappointing GDP is already in the rearview mirror. Not only does it relate to the first quarter, but the retrospective data was overshadowed by a strong May reading of the German IFO index.
Germany’s main indicator rose to a two-year high of 99.2 in May, from 96.6 in April. The stronger-than-expected print suggests that optimism about Germany’s economic outlook is growing. The current assessment and the expectation components of the measure have increased, with expectations at their highest level since January 2011. The growth of the vaccine program and the mitigation of restrictive restrictions clearly boost morale.
Technical stocks are rising after Nasdaq outperformed its peers under the night. Reassuring inflation fears is most beneficial for high-tech stocks.
The real estate sector is also in the spotlight, as two of Germany’s largest real estate developers will merge into a € 18 billion real estate deal. Vonovia SE has agreed to acquire its rival, Deutsche Wohnen, by creating a landlord who will own more than 500,000 dwelling houses in Germany, Sweden and Austria. There is nothing like some M&A activity to spark in the markets.
U.S. futures go higher, extending gains from the previous session. While base metal prices lengthen losses and the Fed continues to sing off the dovish hymn sheet, technology stocks look set to extend its lead.
GBP rises as net public sector borrowing falls
The dollar continues to lose ground, with the U.S. dollar index trading below 90.00, surrounding multi-month lows as inflation declines. The Fed continues to share its harsh rhetoric, insisting that the current rise in inflation is temporary and the market seems to be coming. A temporary rise in inflation does not guarantee a tightening of policy by the Fed.
The main beneficiary of a weaker US dollar, the euro also supports an improvement in trading sentiment in Germany.
The pound extends gains for a second session and looks to target 1.42 after encouraging public sector online lending data. The British government’s huge borrowing rate began to decline in April for the first time since the start of the pandemic. Net lending by the public sector reached GBP 31.7 billion in April, down from a record GBP 47.3 billion a year earlier, when public finances felt the pandemic’s biggest hit. The rapid development of vaccines, steady progress along the reopening path and improvement of economic outlook point to a possibly faster improvement of public finances going forward.