European markets struggle to gain traction

• European indices struggle to hold on to gains amid mixed ZEW report
• US tech stocks help drive fresh record highs
• Will the BoJ cut rates next month?

Early European gains are already coming under pressure once again, with positive sentiment proving short-lived as political uncertainty continues to weigh on stocks in the region. The latest ZEW economic sentiment survey painted a picture of an improving outlook for the future of both the German and eurozone economies, with both readings pushing into multiyear highs. Nonetheless, floundering ‘current conditions’ metrics highlight continued concerns that the economic conditions in the region remain concerning.

European investors will undoubtedly cast an envious eye across the pond after the S&P 500 and Nasdaq pushed into fresh record highs once again yesterday. However, this latest foray higher for US equities has come amid a deterioration in breadth, as markets lean heavily into the performance of big tech names. On one hand this represents a cause for concern given the question of what would happen if those tech names started to roll over. However, the optimists will note that the positive post earnings push for big tech could soon spur a catch-up play for the rest of the market.

The Bank of Japan could be set to hike rates at the forthcoming July meeting according to the Governor Ueda, as he sought to support the Yen in the wake of the widespread disappointment that the bank held off on any tapering of their bond purchases last week. Many had expected the bank to being the process of lowering the rate at which the bank renews their JGB holdings, providing a soft introduction to further monetary tightening down the line. However, the failure to do so has clearly provided a somewhat skeptical stance from markets, with yen gains proving largely fleeting in nature given the mere 27% chance of a rate hike being priced by markets.