European stocks trade mixed on weaker-than-expected Chinese exports and German factory orders
European stocks retreat from all-time highs with commodities stocks leading the declines. The tailwind of the weaker than expected non-farm payroll report has faded and sentiment deteriorated following unfavorable Chinese trade data.
Miners are trading down around 1%, tracing base metal prices lower after Chinese export data raised concerns. Last month, Chinese imports grew at the fastest pace in a decade, fueled by soaring commodity prices. Imports jumped 51.1% year-on-year in May, up from the 43.1% increase in April, but still failed to meet expectations of a 51.5% increase.
Exports surprised on the downside, confusing investors. Exports rose 27.9% year-on-year, below the 32.1% expected and behind the 32.3% recorded in April. As global demand recovers, exporters face higher raw material and freight costs in addition to a stronger yuan. The yuan is trading at a three-year high against the US dollar.
The Dax is underperforming its European peers after the unexpected drop in factory orders in April. Orders from German factories fell -0.2% from March, likely due to supply chain disruptions when the Suez Canal was blocked in early April. A 1% increase was expected, following a 3% increase in factory orders in March.
Germany had a disappointing start to the second quarter. Factory orders were missed and retail sales also fell 5.5% month-on-month. The German economy contracted by 1.8% in the first quarter. The rebound expected in the second quarter so far looks like a wet firecracker and is undoubtedly slower than expected.
On the positive side, eurozone investor sentiment helped push the bloc’s indices out of their lows. So far in June, investor morale in the region has reached its highest level since February 2018, boosted by optimism about the reopening. As the third wave of Covid passes, restaurants and tourism reopen, heightening the sentiment.
Elsewhere, the FTSE is one of the few European indices to increase. As miners trade lower, home builders are raising the index after a larger than expected increase in house prices. The Halifax house price index was up 1.3% month-on-month, ahead of forecast of 1.2%.
FX – Earnings in USD, GBP under pressure as Covid cases rise
The US dollar is up slightly, healing its wounds after Friday’s sell-off following weaker-than-expected US employment data. The dollar index continues to trade within a familiar range as traders turn their attention to this week’s US CPI data.
Consumer inflation hit a 13-year high last month, baffling investors. Another strong reading is likely to cause panic in the market, raising fears that the rise in inflation is not as transient as the Fed believes. While Friday’s overall job creation figure was lower than expected, average wages continued to rise, adding to concerns over higher inflation and a faster Fed move.
The pound is trading lower amid Brexit nervousness and as doubts grow over whether the UK will be able to complete the reopening process on June 21. As Covid cases rise again at an uncomfortably fast rate in the UK, the number of hospitalizations is low. This suggests that the vaccine is successful in severing the link between the two, however, investors will continue to monitor this closely.
For an overview of all of today’s economic events, please see our economic calendar at www.marketpulse.com/economic-events/
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