European Stocks Slide, Gold Drops Below $1,800, Dollar Rises

17 Feb 2021 · 3rd Party Analysis

European Stocks Slide, Gold Drops Below $1,800, Dollar Rises

WRITTEN BY ThorFX

In Summary

  • European benchmarks negative on the day
  • Gold makes a new year-to-date low

On Wednesday, European stocks are trading in negative territory. Right at the opening of the session, equities slid across the European markets as major benchmarks are unable to sustain the buying momentum from yesterday. The UK’s FTSE100 is trading in the red, down by roughly 0.25%, while the German DAX and the French CAC40 slide by 0.60% and 0.10%, respectively, a few hours after the session kicked off.

Gold extends its drop to lower levels today. The precious metal couldn’t find enough support early on Wednesday as market participants pushed the price below $1,800, currently at $1,788. Gold continues to lose ground for a fifth straight session today, reaching a year-to-date low of $1,783 and a month-to-date decrease by 4%.

The USD recovered further this morning from its multi-week lows and weighed on the precious metal. The fresh selling wave in gold comes on the back of the increased speed of vaccinations across the globe and a lowering number of new daily cases both in the US and the UK. The improving progress on the vaccine rollout and the slowing pace of infections have renewed the optimism over a quick economic recovery from the coronavirus pandemic.

Additionally, the market continues to keep its hopes high for the passage of the proposed $1.9tn stimulus plan, which results in a boost of investors’ confidence and an increased exposure towards riskier assets. These factors appear to undermine the appetite for gold as a haven.

Inflation Marks the UK’s Economic Statistics

Meanwhile, market participants today will monitor the US retail sales, one of the most important economic gauges, along with the latest PPI data for January. Over to the UK, inflation accelerated in January, boosted by food and furniture costs. According to the latest report from the Office for National Statistics, consumer prices increased 0.7% from a year earlier, up from 0.6% in December. UK inflation remains below the 2% level targeted by the Bank of England.

The Bank of England, which has cut the interest rate to allow for cheaper loans during the pandemic, signaled earlier this month that it does not intend to introduce negative interest rates as it hopes for a quick economic recovery, underpinned by the strong results from the vaccination program that recently surpassed 15 million doses administered to the UK population. In this regard, the central bank is optimistic that once businesses are allowed to reopen, the economy will be strengthened and consumer confidence will increase. The Bank of England predicts inflation to gradually rise this year but remain under its standard target of 2%.

In Italy, Mario Draghi delivered his maiden speech in the Italian Senate today. While presenting his policy priorities, he highlighted the first order of business, fighting the coronavirus pandemic. Italy’s new Prime Minister and the former European Central Bank President also stated that Italy will act in accordance with the European Union and the United States and seek a dialogue with Russia. Regarding domestic politics, Mr. Draghi will push for a reform of the tax system and an increased efficiency of the justice system.

Moreover, Mario Draghi will work to implement reforms that will allow the adoption of the €200mn aid from the European recovery fund.

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