Powell’s relief rally helps European stocks higher

A strong finish on Wall Street, which saw the S&P500 close over 1.8% higher, is helping Europe to set off on the front foot today.

● Fed Powell ruled out a 50-basis point rate hike in March, calming market fears
● Euro trades at a 2-year low vs GBP & below 1.11 on stagflation worries
● Oil continues to climb to 9-year highs after OPEC+ sticks to gradual output increases

A relief rally in the US markets came after Federal Reserve Chair Jerome Powell calmed fears of aggressive interest rate rises from the central bank, effectively ruling out a 50 basis point interest rate rise in March. Powell was upbeat in his assessment of the US economy which he believes is strong enough to absorb the interest rate rises required to tame inflation. Powell struck the right tone, boosting the equity markets which have seen heightened volatility this week.

News of a ceasefire on the agenda at Russia-Ukraine peace talks is also helping risk sentiment edge cautiously higher. Safe havens such as Gold and the Japanese yen are falling in early trade, but it remains to be seen if this will last throughout the day. Russia, Ukraine developments will continue to be a key driver for risk sentiment but for now, headlines are sparse.

On the data front, composite PMI data from Europe and the UK are due to be released. These are final readings so tend to be less market-moving than the initial prints. The eurozone composite PMI, a good gauge for business activity, is expected to rise to 55.8 in February, up from 52.3. The UK composite PMI is expected to rise to 60.2 in February from 54.2 in January.

Looking ahead to the US session, initial jobless claims and ISM non-manufacturing PMI data will be in focus, paving the way for tomorrow’s non-farm payrolls.

FX

The euro continues to trade under pressure falling to a 2 year low versus the pound and trades back below 1.11 versus the USD. Yesterday's inflation data revealed that consumer prices surged to 5.8% YoY in February, up from 5.1% in January. This was a record high, which heaps pressure on the ECB to hike rates and also lifted the euro off session lows. Today, fears of stagflation are dragging on the common currency, amid worries that the Russia-Ukraine conflict will hurt growth, whilst inflation continues to surge.

Oil

Oil remains very much in focus, as Brent rises to a nine-year high of $118 per barrel and WTI to $115, as trade issues and shipping concerns stemming from the sanctions on Russia, fuel supply concerns. Whilst Western sanctions have so far avoided Russian oil and gas, there are growing concerns that these will be on the next hit list. Russian oil accounts for around 10% of global supply and is the world’s third-largest exporter, making any slowdown in supply significant. Yesterday OPEC+ refused to be drawn into the mix, voting to maintain its current 400k barrel per day increase in April, despite oil trading at its highest level since February 2013. Whilst high oil prices are a headwind for most businesses, oil majors outperformed yesterday, with Shell and BP trading between 4-5% higher.