European stocks are in the green this morning after the US markets eventually moved north yesterday and closed near their highs. Futures are very modestly better bid with Intel earnings on tap today ahead of the tech titans next week. Several upcoming headwinds are being cited by some analysts (“Sell in May and go away” and the delayed US tax season) but while the punchbowl is still very much on show, equity bulls can feast on the largesse of central banks for a little while longer.

European stocks rebound

The earnings season is going very well currently in Europe with results continuing to deliver better than expected operating earnings. The major Eurostoxx 50 index bounced back strongly yesterday with the 20-day SMA holding up prices nicely and today’s bid takes it above the start of the month’s consolidation range. Earnings expectations are high that bullish momentum will carry on, which means this year’s series of higher highs and higher lows can continue. A close above 4,000 further bolsters this view.


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BoC leads the way

While no fireworks are expected from the ECB today with markets waiting for the June meeting and a potential scaling back of bond buying along with new staff forecasts, the Bank of Canada surprised markets yesterday with its hawkish stance. A taper in its QE program was on point but the bank brought forward the anticipated recovery (and closing of the output gap), thereby advancing the date of its first rate hike to 2022, a year earlier than previously thought. Growth estimates were also raised for this year.

CAD got an immediate boost and with more tapering to come in the coming months and then potential moves in rates, the attractiveness for the loonie may only get stronger. Remember it’s the first major central bank to get on the path to normalisation and is in stark contrast to its neighbour, the Fed, who recently said there will be no rate moves until 2024!

USD/CAD needs to break the bottom of the recent range and yesterday’s low at 1.24586 before heading to the cycle low at 1.23638.

Of course, oil and CAD are highly correlated and any prolonged selloff in crude owing to demand issues from those countries experiencing rising infection rates may hold up the USD/CAD selloff.

 

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