Stocks Continue to Rally Despite Overbought Conditions

European stock markets moved higher, with the DAX leading the way. The German benchmark index is slightly off intraday highs and even the FTSE 100 managed to recover early losses and is up after a largely positive session in Asia, where the Hang Seng managed a late rally and closed with a gain of 0.41%. The Nikkei shrugged off a stronger yen and was up 0.19% at the close, and U.S. stock futures are also higher, with investors continuing to pile into equities despite warnings of overbought conditions and overheating. Central bank support may be being phased out slowly but steadily, but sluggish inflation and a strong EUR, should back the doves at the ECB and support a cautious approach to changes in the forward guidance ahead of the end of the current QE program in September.

Crude oil futures are down for a second day, earlier logging a 10-day low at $62.84 before recouping toward $63.40. Despite the bounce, prices remain below yesterday’s closing level at $63.66. Ongoing dollar weakness helped given crude and other commodity prices an underpinning. The low was seen after the IEA forecasts crude supply to increase in 2018 in its latest monthly report, forecasting non-OPEC supply will rise by 0.2 month over month barrels per day on average. At the same time, the IEA forecast for global oil demand to remain unchanged at 1.3 month over month barrels per day.

The IEA forecasts crude supply to increase in 2018, saying in its latest monthly report, out today, that non-OPEC supply will rise by 0.2 month over month barrels per day on average. While compliance in the OPEC effort to maintain supply restrictions is expected to main high, growth in U.S. production, along with increasing output from Canada and Brazil, should underpin prices. The IEA left its forecast for global oil demand unchanged at 1.3 month over month barrels per day. WTI benchmark futures are down for a second day, presently off by 0.7% at $63.48, earlier posting a 10-day low at $62.84.

UK Retail Sales Disappointed

UK retail sales disappointed in official December data, dropping 1.5% month over month, more than the 0.6% month over month decline anticipated by the median forecast. The year over year figure came in with 1.4% growth, well off the median forecast for 2.6% growth. November data were revised slightly lower, too, to 1.0% month over month growth, down from 1.1% month over month, and to 1.5% year over year growth from the 1.6% year over year figure initially reported. The ONS stats office reported that for 2017 as a whole, the retail sales rose 1.9%, which is the weakness annual growth rate since 2013.

A spike in inflation above a 3.0% year over year rate coupled with sluggish pay growth drove real average household incomes lower in 2017, undermining both consumer confidence and spending power. Brexit concerns will remain a factor, however, with major issues coming into sharp focus this year ahead of the actual exit next March.