US markets look to rebound after recent short-term pullback

• DAX continues to outperform as it looks for an eighth consecutive weekly gain.

• Spanish inflation a warning sign although eurozone inflation expectations fall.

• US markets look to rebound after recent short-term pullback.

The FTSE 100 has found itself lagging its mainland European peers once again this morning, with the DAX continuing its impressive push that looks set to establish an eighth consecutive weekly gain for the German bourse. While many will note a potential disconnect between the economy and the stock market, but we are ultimately seeing how the German DAX can be heavily influenced by a handful of names in the same way as their US counterparts. The international focus for many of these stocks do provide a buffer from the ongoing economic concerns in Germany, while the prospect of a dovish pivot from the ECB in the coming months does provide the basis for continued optimism from European investors.

Higher than expected Spanish inflation provided a warning sign of what could be around the corner as we kick off a period that culminates in the eurozone CPI release in a week’s time. Things have changed from the situation faced in mid-2023, with Spain managing to drive CPI back down to 1.9% in June. However, with the March monthly figure of 0.8% released today, we can see some cracks in the prospective pathway back down to target. Nonetheless, with the wider eurozone figure expected to fall back down below 2% by the end of H1, markets have grounds for optimism as things stand. The release of eurozone consumer sentiment data further hammered home the need for rate cuts, with the March economic sentiment figure continuing to flounder (96.3), while 12-month inflation expectations dropped (12.3 from 15.4).

Looking ahead, a relatively quiet US calendar will likely see traders focus on the ability of equity markets to push through after yesterday’s rebound in durable goods sent stocks lower to the benefit of the US dollar. Growing concerns around the federal reserve's ability to cut rates in the face of above target inflation should help provide some backbone to the US dollar moving forward, however any short-term periods of weakness for US equities have typically been viewed as an opportunity to buy the dip. With U.S. markets expected to open in the green, the steady decline seen since Thursday's peak look like a possible opportunity for the bulls to jump in once again.