European stocks are edging lower after struggling to maintain momentum at all-time highs. Not even calming words from Federal Reserve Chair Jerome Powell or signs of a strong economic recovery in the region managed to lift the cloud hanging over stocks in Europe.

The market is still adjusting to the Fed’s hawkish shock last week when it projected two interest rate rises in 2023. Fed Powell attempted to put a dovish spin on last week’s hawkish surprise, playing down fears over rising prices and sticking to the well-rehearsed script that surging inflation is transitory.

There will be a period of readjustment as the markets take this on board and digest the evolving economic position of the US and the Fed’s change in tone.

Eurozone PMI data revealed that business growth accelerated at the fastest pace in 15 years in June. As vaccination numbers rose, pandemic restrictions eased, and pent-up demand was unleashed, spurring on the economy.

Activity in both manufacturing and services is booming. The composite PMI hit 59.2 in June, up from 57.1 in May and well ahead of the 58.8 forecast. Breaking it down into countries, Germany outperformed with services sparking back into life as lockdown restrictions were lifted. On the other hand, France was a little disappointing. While business activity grew, it did so at a slower pace than expected.

The FTSE is outperforming its European peers, boosted by oil and resource stocks. Oil majors are lapping up surging prices in crude and brent, which hover at fresh multi-year highs.

Looking ahead to the US open, US futures are looking more placated by Fed Powell’s words than Europe. Comments from the Fed’s head honcho appear to be calming the rattled market stateside. Moreover, the downplaying of the risk of an early move to tighten monetary policy has lifted sentiment, with the tech-heavy Nasdaq the clear winner.

FX – GBP rises as inflationary pressures build

The US dollar is edging lower post Fed Powell’s comments and as investors look ahead to more Fed members hitting the airwaves. Furthermore, John Williams, an influential Fed member, said that more progress is needed before they start to taper, adding to the softer tone surrounding the greenback.

The pound is advancing after PMI data once again impressed, revealing the UK economy is still firing on all cylinders as it ramps up from the pandemic. However, the data also highlighted mounting inflationary pressures as input costs surged higher. This suggests that consumer prices, which are already above the BoE’s 2% target, could push higher still. Investors will be watching the BoE closely tomorrow to see if the data will prompt the UK central bank to act sooner.

For a look at all of today’s economic events, please check out our economic calendar at www.marketpulse.com/economic-events/