Signs that centrist Emmanuel Macron was heading for victory in France's presidential election and reassuring results from HSBC pushed European shares to a near two-year high on Thursday, despite some wary signals from China and commodity markets.
A poll showing Macron had outperformed far-right candidate Marine Le Pen in a televised debate sent short-term French bond yields to their lowest in five months, with encouraging euro zone data also helping the mood.
Global signals were more mixed however. The weakest growth in a year from China's services sector added to the pressure on oversupplied oil and metals markets that have began to buckle again in recent weeks.
Those strains were exacerbated too by a stronger dollar after the Federal Reserve had downplayed the somewhat soft start to the year for the US economy at its latest meeting on Wednesday.
“There are a number of things playing out at the moment. Traditionally in May there is a strong dollar effect and that is adding to the pressure on the commodity bloc,” said Unicredit's head of FX Strategy Vasileios Gkionakis.
“In Europe it is slightly different. There is what is going on with the French election and we have been seeing some strong data.”
A flurry of well-received earnings updates in Europe sent the STOXX 600 to its highest since August 2015 and included a smaller-than-feared fall in bank giant HSBC's profits which sent its shares up more than 3 per cent.
Oil and gas stocks were also up 1.1 per cent following robust updates from both Statoil and Royal Dutch Shell, which rose 3 per cent and 2.3 per cent, respectively.
It is was a different situation in the physical commodity markets though.
Oil fell for a third session in four to leave it near its lowest since late March at $50.50 after the China services wobble and supply data had shown a smaller than expected decline in US inventories.
Bellwether industrial metal copper was also teetering near a four month low on what traders said was China-based selling and on expectations that two US rate rises this year could curb interest in dollar-denominated metals.
“Later today there is a mass of US data, including key employment numbers, durable goods and factory orders and if these also fall below expectations it would be reasonable to expect another wave of selling,” Kingdom Futures said in a note.
Going for a hike
After the dollar had risen across the board after the Fed's meeting on Wednesday, the dollar index which measures it against the top six world currencies, was up another 0.2 per cent on the day at a two-week high of 99.462.
It was marginally higher at 112.80 yen but more than a third of a per cent stronger at $0.7394 per Aussie dollar and 0.2 per cent higher against the New Zealand dollar.
The euro meanwhile drew some support from Macron's performance ahead of Sunday's election run-off, and was barely budged at $1.0876.
World markets have been assuming a Macron win since the first round of votes last month and so there is only a little juice left in any relief rallies come Sunday evening.
That said, European equity markets have been outperforming Wall Street this week as the latter stumbled on Apples iPhone hiccup and Wednesday's signs that the Fed wont be deflected its plans to gradual raise U.S. interest rates.
At the end of its two-day meeting, the Fed kept its benchmark interest rate steady, as expected, but downplayed weak first-quarter economic growth and emphasised the strength of the labour market, a sign it was still on track for two more rate increases this year.
Futures traders are now pricing in a 72 per cent chance of a June rate hike, from 63 percent before the Fed's statement, according to the CME Group's FedWatch Tool.
Attention now turns to US non-farm payrolls for March, due on Friday, after separate data showed private employers added 177,000 jobs in April. That was higher than expected but the smallest increase since October.
Economists polled by Reuters expect US private payroll employment likely grew by 185,000 jobs in April, up from 89,000 in March.