Crude Surges Driving Energy Shares Higher

Markets in Europe re-open after the Christmas holiday weekend, but trading is quiet. European yields are lower, while peripheral benchmark yield spreads relative to Bund yields were wider as a consequence of the ECB having temporarily suspended bond-buying operations between Christmas and the new year. European stock markets started well, buoyed by a rally in copper and base metal prices, before tipping lower in quiet conditions, and most of the main national indexes were showing modest losses. Weakness in tech stocks amid reports that sales of Apple’s iPhone X have been disappointing helped weigh on sentiment, while copper and other commodity prices corrected some. Oil prices, which hit a two-and-a-half-year yesterday, also softened today.

Crude Surges Above $60

WTI crude topped at $60.01 on Tuesday, levels last seen in June of 2015, before pulling back to current $59.55 levels. Support has come from the ongoing outage of the Forties North Sea pipeline, and an explosion at a Libya pipeline, which have resulted in about a 500k barrel per day of shut-in production. Thin holiday trading conditions likely exacerbated Tuesday’s rally, which saw prices vault from $58.33 lows. Profit taking has been this morning’s driver, seeing traders take chips off the table after printing the key $60 mark.

LME copper prices have posted the longest run higher since 2004, trading above $7,210. This caps a nine consecutive day run higher. A combination of demand and supply side news have been underpinning prices, with reports prognosticating rising global and Chinese demand including for soaring demand from electric automobile manufacturers juxtaposed to reports of supply disruptions as a consequence of mine closures. There was also news that China’s biggest producer Jiangxi Copper Co has been ordered to shutdown production for at least a week for pollution considerations. The rise in copper has given related stocks a lift today.

U.S. Dallas Fed manufacturing index bounced 10.3 points to 29.7 in December after falling 8.2 points to 19.4 in November. This is the highest since early 2006. The employment component surged to 20.4 from 6.3, with the workweek climbing to 23.3 from 11.5, while wages jumped to 25.1 versus November’s 14.2. New order improved to 30.1 from 20.0. Prices paid were little changed at 32.5 from 32.2, and prices received edged up to 17.9 from 15.1. The 6-month general business activity index inched up to 40.9 versus 39.0, with employment at 36.6 from 29.8, orders at 50.8 from 48.9, and capital spending at 43.2 versus 34.1. The price outlook showed prices paid at 52.1 from 48.4, and prices received at 42.7 from 35.8.