European Shares Surge Higher Ahead of ECB Meeting

European stock markets continue to move higher, following on from broad gains in Asia. Both the FTSE and DAX are higher by more than 1.5% in early afternoon trade. Technology producers and banks helped to underpin Asian markets and in Europe commodities managed to pick up as oil prices rebounded from earlier lows. Banks though rally ahead of Thursday’s ECB meeting, with markets expecting Draghi to not only extend the QE program at current levels, but are also hoping for a loosening of the deposit rate limit for QE purchases, which seems to have underpinned demand in today’s German 2-year Schatz auction.

Oil prices have recouped intraday losses and are presently near net unchanged heading into the New York open. WTI is flat, at $50.85, having earlier shown a 1.1% decline at the low. The better than expected draw reported by the API was offset by a larger than expected build at Cushing Oklahoma, which is where WTI is priced. The market is now in a consolidation in the wake of last week’s low-to-high rally of 17%, which left a 17-month peak at $52.42. After last week agreeing on the plan to trim production by about an overall 1.5 million barrels per day, market focus is not on OPEC and key non-cartel producing nations to deliver on implementation. OPEC’s track record should be sufficient to feed a degree of market wariness, while Nigeria, which is an OPEC member that is exempt from participating in supply cuts, said today that it is planning on rising production to 1.9 million barrels per day.

UK Production Unexpected Declined in October

UK production unexpectedly contracted in October data. Industrial output fell 1.3% month over month, the biggest fall in four years, accelerating from September’s 0.4% contraction. The median forecast had been for a 0.2% month over month gain. In year over year terms, industrial production fell 1.1% after a 0.4% gain in the previous month, the biggest decline since August 2013 and wrong-footing the market expectation for a 0.4% gain. The ONS stats office reported that ongoing maintenance in the oil and gas extraction industry affected industrial output. The narrower manufacturing production gauge, however, which excludes the oil industry, fell 0.9% month over month and by 0.4% year over year following respective prior-month gains of 0.6% and 0.1%, thwarting market expectations for 0.2% month over month and 0.8% year over year advances. Sterling traded 0.2% lower versus the dollar in the wake of the data release.

German production data came in weaker than expected, with a modest 0.3% month over month rebound from the drop-in September that was revised up to -1.6% month over month from -1.8% month over month reported initially.