Crude Oil Hits Fresh 28-month High Buoying Energy Shares

Stock markets are mixed, with the DAX underperforming and down while the FTSE 100 managed a rise, as investors look ahead to the U.K.’s mid-year budget and the minutes to the last Fed meeting. WTI futures hit a fresh 28-month high helping to buoy energy shares. European yields jumped higher led by Germany, lifting the Euro, after Coeure suggested net asset purchases will end in September next year and the ECB will start to refocus on rate guidance in the run up to the end of the next QE program. Peripherals yields were mixed with limited supply and ongoing ECB buying continuing to add to volatility this week. Reports, that the U.K. and the EU aim to reach agreements on key issues ahead of the December summit and thus pave the way for the parallel discussion of transition period and post-EU trade deals alongside the detailed negotiations on Brexit terms, also underpinned yields as it increases the likelihood that political uncertainties that held back the ECB from committing to an end date for QE, will be cleared.

WTI futures have rallied to new 28-month highs, logging a peak of $58.05. News that a fault in a major Canadian pipeline has curtailed supply to the U.S. catalyzed the latest spring higher. TransCanada Corp announced an 85% drop in crude it delivers to the U.S. on its Keystone pipeline, which will last through to the end of the month. Weekly API data also showed U.S. crude inventories falling by 6.4 million barrels in the week to November 17, which was much higher than market forecasts, fueling expectations for a similar jump in official EIA data due on Wednesday. And there is also a background market narrative that the OPEC-led supply curtailment will be extended beyond March next year when major oil producing nations meet in Vienne on November 30.

UK Government is Set to Present Autumn Budget

The UK government is set to present its Autumn budget on Wednesday. Chancellor Hammond is generally considered to have little room for fiscal maneuver even though he is under pressure to present an upbeat post-Brexit vision of the British economy. His chief problem is that the Office for Budget Responsibility is likely lower its GDP forecast due to signs of slower productivity growth over the next several years, with business investment down on the back of Brexit-related uncertainty. Lower growth projections could in turn leave the government obliged to tighten the austerity screws if Chancellor Hammond’s target for a structural fiscal deficit of less than 2% of GDP in the 2020-21 fiscal year.