European stocks rise after wild Friday on Wall Street, Brent jumps above $70

• Senate passes $1.9tn relief bill
• Brent above $70
• Deliveroo losses narrow

European shares edged higher in early trade after a blowout jobs report from the US on Friday drove gains on Wall Street and stoked further volatility in bonds, whilst the US Senate passed Joe Biden’s $1.9tn stimulus package over the weekend. This massive relief bill will deliver a huge fiscal impetus in the second quarter of the year just as the US economy is buoyed by reopening, as Friday’s jobs report indicated is already taking place.

US nonfarm payrolls smashed expectations last month, coming in at 379k for February and January’s numbers were revised up to +166k from +49k. The bulk of these gains came in the leisure and hospitality sector which indicates businesses are opening the doors and consumers are coming out in force. The big beat in turn drove up the longer end of the yield curve as the 10-year yield jumped above 1.6% and 30-year climbed north of 2.3%; and saw stocks swing wildly before notching solid gains. The S&P 500 moved in a 120-pt range and finished up 2% on the day but futures are pointing to a lower open later. The Dow swung by more than 800 points and finished up over 570pts, or 1.85%, for the session.  The turnaround indicates tech stocks are still on the hook for losses as yields rise but cyclical names are finding traction to support broader gains. Tesla shares ended almost 4% lower under $600, some 30% below its all-time high. This is a market that is taking out stretched growth valuations and rewarding value and cyclical patience.

Bunds are in focus ahead of the week’s ECB meeting after rising about 25bps this month – how much does the central bank lean against the pop in yields? Chief economist Philip Lane has already stressed the importance of the yield curve to the ECB – noting that there are ‘two key yield curves in the euro area for the funding conditions of all sectors in the economy’. Whilst Executive Board member Panetta was uber dovish last week, stressing that the ECB should not hesitate to ramp up emergency asset purchases, Germany’s Schnabel has been anchoring expectations by saying the PEPP envelope is a ‘ceiling not a target’. I think the ECB will this week seek to increase the pace of PEPP purchases in an attempt to lean against rising yields, and may increase the envelope size. It should be said however that the recent decline in the euro will be a positive for Lagarde.

Brent crude rose above $70 for the first time in year after an attack on Saudi Arabia’s oil facilities on Sunday. This is the kind of geopolitical risk premium we have come to expect over the years but really prices are being driven by a tight market that has been squeezed even tighter by OPEC’s surprise decision not to increase supply next month.

Deliveroo losses narrowed last year as soaring demand created by the pandemic led to a 64% jump in total sales, the company revealed today in its listing document. Gross Transaction Value increased 64.3% from £2.5bn in 2019 to £4.1bn in 2020. Underlying gross profit grew by 89.5% from £188.7m to £357.5m. Investors will be encouraged to also see underlying gross profit as a percentage of GTV rising from 7.6% to 8.8% over this period, indicating Deliveroo is becoming more efficient at getting things from A to B. This all culminated in an adjusted EBITDA loss of £9.6m, compared to a loss of £231.6m in 2019. The company is applying for a standard listing to enable a dual class share structure that will let founder Will Shu retain control. A shakeup of listing rules combined with a valuation of around £7.5bn could mean it joins the FTSE 100 in the not-too-distant future. £50m worth of shares being earmarked for customers will likely be in high demand.

Gold continues to test the 61.8% retracement as yields and inflation expectations rise.

Watch the dollar as it breaks 92 and heads towards key 20-day EMA.