European markets are enjoying a strong start to the trading day, as the bulls seek to step in to rescue what has been a pretty damning April thus far. The risk on sentiment being felt today has helped drive the dollar lower, following a period of gains that saw the greenback reach a five-month high yesterday. What has been notable over recent months has been the outperformance of European indices compared with their US counterparts, as their lofty valuations bring greater profit taking. The Federal Reserve are facing elevated inflation pressures and a solid economy, raising the likeliness of a divergence this year as European central banks cut rates ahead of their US counterparts.
US tech names led the declines in the US yesterday, with Semiconductor heavyweights coming under particular pressure. However, we have seen some grounds for optimism from the world’s largest chip manufacturer, with TSMC enjoying a 9.8% increase in year-on-year profits. Recently viewed as a key barometer of AI chip demand, there is a hope that the likes of Nvidia and Arm Holdings will see the buyers step in once again on the hope that we will see a similarly upbeat tone when they report in the coming weeks. However, while Asia’s largest listed company may have enjoyed an impressive 16.5% jump in year-on-year revenues, there will be some concern that TSMC saw a 5.3% drop in sales compared with the fourth quarter.
Market sentiment appears to be heavily entrenched with the trajectory of crude oil, with the slump in oil prices helping to lift sentiment today. While oil is priced in dollars, the classic inverse relationship has switched of late to reflect the concern that higher oil prices will spur a second wave of inflation. With that in mind, the 3% decline seen in WTI over the past 24-hours can perhaps best explain the optimism seen in markets today. The risk of an escalation between Israel and Iran appears to be easing with each passing day, while yesterday’s fourth consecutive weekly gain for US crude inventories has signalled an oversupply despite a recent decline in US output.
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