Trade talk optimism and improving eurozone data boosted global stocks on Wednesday, overshadowing a weaker US ADP payroll report. Equities across Europe extended gains for a fourth straight session, whilst Wall Street also opened in the black.
Hopes that the US and China were close to agreeing a trade deal, after ironing out the majority of outstanding issues, put fresh legs on the recent rally.
Meanwhile a slew of better than expected PMI data from Italy and Germany, plus eurozone retail sales surprising to the upside, eased concerns over the outlook for the region. The yield on the German 10-Year bond climbed above 0 for the first time in a week. The Dax surged over 1.2%, whilst the euro pushed back up towards $1.1250.
FTSE lags on stronger pound
The FTSE lagged behind its European counterparts owing to the Brexit strengthened pound. Optimism that joint talks between Theresa May and Jeremy Corbyn will result in a softer version of Brexit sent the pound higher in the previous session, with gains being extended today. Theresa May reached out to the leader of the opposition party in an attempt to end the deadlock in Westminster. However, she has infuriated Brexiteers in her party who are looking for ways to oust the PM.
UK Service sector PMI sparks downturn fears
UK service sector data dragged the pound off session highs. The service sector PMI showed that activity unexpectedly slipped into contraction in March. The PMI declined to 48.9 in March from 51.3 in February, whereby 50 separates expansion from contraction. Given that the service sector is by far the most dominant sector of the UK economy, accounting for around 80% of economic activity, these figures are not to be sneered at.
The dire data has fuelled concerns that the UK could be heading for a downturn.
Oil rally pauses
Oil was pausing for breath on Wednesday after an impressive few sessions. With gains of over 4% already this week, Q1’s stellar rally is successfully spilling over in to Q2. Crude hit a peak of $63.00 before easing slightly as the US opened, while Brent continues to flirt with $70 per barrel.
Supply has been tightening across the year. Continued OPEC production cuts plus sanctions on Iran and Venezuela, have seen output from the oil cartel plus Russia decline to a four month low. Demand concerns have also been easing amid improving economic data from China, the US and today the eurozone.
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