Reopening optimism drives markets higher, NFP in focus

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European equities rise ahead of US Nonfarm Payrolls

After fresh record highs on Wall Street, European stocks have kicked off the session on the front foot. An optimistic mood is dominating the market as investors look ahead to the release of the US non-farm payrolls.

Robust earnings and yet more upbeat data from the Eurozone indicates the economy has turned a corner. German industrial production numbers printed ahead of forecasts, following in the footsteps of a string of data points across the week. In addition to German factory orders, Eurozone retail sales, Eurozone services and composite PMIs all came in ahead of consensus estimates, which bodes well for Q2 growth.

While the Dax is leading the charge in Europe, the FTSE has also put in a notable effort across the week, heading for its best weekly performance in a month. Energy stocks and industrials are dominating the upper reaches of the UK index. Miners are also on the rise as copper trades at an all-time high.

The solid rise in the FTSE also comes after the BoE upgraded its growth forecasts for the UK. Confirmation of stronger growth from the BoE has added to market confidence that the recovery is firmly on track. With further easing of lockdown measures later this month, economic growth is likely to accelerate.

Reopening optimism is keeping the bulls in the driving seat even as the likes of the Dax and the Dow Jones hover around all-time highs.

Today’s non-farm payroll report is expected to build on evidence that the US economy is firing on all cylinders. Forecasts suggest just shy of a million could be added in April, after 916k were added in March.

Leading indicators point to a blowout number, even if slightly short of forecasts. The ADP employment change report, which is positively correlated to the NFP, revealed that 742k private-sector jobs were added in March. This was slightly below forecasts of 860k.

US dollar lower ahead of NFP

The US dollar is heading lower, extending losses from the previous session and trades near a one-week low. The greenback has come under pressure despite clear signs that the US economy is on a firm path to recovery. Continual reassurance from the Fed that tapering is not on the agenda any time soon is dragging on the US dollar.

All eyes are on the non-farm payroll report later. While a strong number could boost risk appetite and drag on the US dollar, it could also lead US treasury yields higher as the market anticipates tighter monetary policy from the Fed sooner than expected. This could have the opposite effect and boost the US dollar.

Ultimately a solid read could test the markets’ belief in the Fed’s dovish stance. For now, the market has been taking the Fed at its word. The question is whether these numbers will change that?

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