Morning Bid: Transatlantic split

2 minute read

U.S. dollar and euro banknotes are seen through broken glass in this illustration taken, June 25, 2021. REUTERS/Dado Ruvic/Illustration

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A look at the day ahead from Sujata Rao.

After U.S. Q4 GDP came in at an annualised 6.9%, the highest since 1983, could Europe go one better? Yes and no.

France just posted data showing the economy in 2021 expanded at the strongest rate in 52 years at 7%. Sweden too beat expectations at 6.4%. German growth meanwhile is expected at a more sedate 2.7%.

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The wait is on.

In any case, not much relief for the euro, which is heading for its biggest weekly loss against the dollar since last June, and could tumble below $1.11 for the first time since mid-2020. The promise of an aggressive Fed rate rise campaign and a slew of buoyant economic data have boosted the dollar index almost 2% so far this week.

As usual, reasons for the U.S.-Europe split can be seen in "real" bond yields. After stripping out inflation effects, U.S. 10-year yields now stand at minus -0.5%, double end-2021 levels, while its German equivalent languishes around -1.8% .

While Wall Street ended with losses again on Thursday, Apple (AAPL.O) posted record holiday-quarter sales, having skirted the supply chain problems that have bedevilled rivals. Shares jumped 5% after-hours, but with the world's biggest company down almost $400 billion from peak value, will more buyers emerge?

Aside from the European growth, markets will await core U.S. PCE, the Fed's favoured inflation gauge, to see if price growth is peaking. Expectations though are for a pick-up to 4.8%, which would be the highest reading since 1983.

As for stock markets, futures are again pointing north after a bounce across Asia. Here at least Europe appears more resilient, having managed to end firmer on Thursday. The pan-European STOXX index is down 3.5% this year (-9% at the S&P 500) while Britain's FTSE is actually in the green.

Apple market cap

Key developments that should provide more direction to markets on Friday:

-Italy's UniCredit reports better-than-expected full-year revenues and profit read more

-Portuguese snap election points to rocky road ahead read more

-Euro zone consumer and business sentiment

-Emerging markets: Colombia expected to raise interest rates

-U.S. core PCE index Dec/University of Michigan inflation expectations

-U.S. earnings: Chevron, Caterpillar, Colgate Palmolive

-European earnings: Caixabank, Unicredit, H&M, Electrolux, Volvo, Telia, Svenska Celulosa

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Reporting by Sujata Rao; editing by Dhara Ranasinghe

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