European markets on the rise, with German IFO continuing positive theme

• European markets on the rise, with German IFO continuing positive theme.

• Australian inflation dampens rate cut hopes.

• Tesla rebound highlights more forgiving market approach for Q1 earnings season.

European markets are in the green once again this morning, with the FTSE 100 continuing its welcome trend of reaching fresh record highs on a daily basis. The weakness of the euro and pound highlight the growing confidence that we will soon see the ECB and Bank of England shift onto a new phase of monetary easing, with European indices similarly being driven by expectations of a June pivot. The latest German ifo business climate report saw the metric climb to an 11-month high, building on the PMI gains that saw the German composite PMI surge through 50 for the first time since June 2023. There are clear signs of economic health returning for the German economy, with the eurozone looking well set up to take full advantage of the dovish pivot from the ECB.

While European central banks look to be gearing up for an impending June pivot, things are looking more complicated in Australia following a concerning rise in their quarterly CPI print overnight. Declines for the ASX tallied up with a strong Aussie dollar, after a 1% CPI print for the first quarter served to push back expectations for a rate cut. While markets are pricing a 78% chance that we see the RBA keep rates steady throughout this year, they also point towards a 2024 rate hike being as likely as a cut.

Tesla post earnings bounce served to highlight the curious situation facing investors and traders, with the recent weakness seen in equity markets serving to provide a more forgiving environment for businesses compared with previous quarters. With Tesla having missed on both the top and bottom line, we instead saw markets focus on their company’s plans to fast track a budget friendly model that could help them compete with the relentless price competition in China. Looking ahead, Meta continues the big tech theme, with markets hopeful that the resurgence seen in advertising demand can help drive yet another surge in revenues.