Crude Hits Fresh 2-year Highs, but European Stocks Fail to Rally

European stock markets are heading south on the first trading day of the year, with miners under pressure and USD weakness adding to the negative sentiment. And while it seemed at the start of the session that the Italian MIB could manage to shake of election jitters, it is now underperforming again with a  loss of nearly 1%, although the DAX is also down -0.75%, underperforming the FTSE 100, which lost -0.45% so far, as investors are struggling with a EUR rate above 1.20 against the dollar.

WTI futures earlier clocked a new trend high at 60.74, which is the highest level traded since June 2015. This is the first time since 2014 that prices have opened a new year above 60.00. The widespread anti-government protests in Iran, which have run into a fourth day, have added to the bullish underlying narrative in crude markets, offsetting news that the 450k barrels per day Forties pipeline in the North Sea reopened on Saturday after an unplanned shutdown. A reduction in global crude inventories, along with the OPEC-led supply restriction program, which will extend through to the end of 2018, have been underpinning crude prices, along with expectations for growing global demand. Market participants will be keeping a close eye on U.S production levels, which are set to hit record highs of over 10 million barrels a day over the coming month or two.

UK December Manufacturing PMI Missed Expectations

UK December manufacturing PMI missed expectations, declining to a headline reading of 56.3 from 58.2 in the month prior. The median forecast had been for a more moderate dip to 57.9. The 56.3 outcome matches that seen in the October survey, unwinding what was an unexpected pop in November. Despite the slowing from November levels, the survey still indicates healthy expansion in the sector, and showed output, new orders and employment components all rising at solid, above-trend rates. The average reading for Q4 2017 worked out at 57.0, which is the best average since Q2 2014. The report also showed an abatement in input costs, which touched a four-month low rate of increase, though selling prices rose for a twentieth successive month. The outlook remains positive, with 54% of companies reporting that they expect production to rise over the coming year.

The Caixin/Markit manufacturing Purchasing Managers’ Index for December came in at 51.5. Economists expected the private Caixin/Markit PMI to come in at 50.6 in December versus 50.8 in November. China reported official manufacturing PMI, as expected, at 51.6 in December, a dip from 51.8 in November.