Higher Oil Prices Buoy Riskier Assets

European stock markets are mostly slightly lower. Eurozone markets are underperforming, and the DAX is correcting somewhat after reaching new highs for the year on Tuesday. The FTSE 100 is holding on to a small gain in catch up trade and as markets return from their extended Christmas break. The DAX may be correcting slightly today, but the index is still set to end the year with a solid gain after Draghi managed to inject new life into markets with his confirmation that the ECB will continue its asset purchases through 2017. Asian markets were also mixed overnight. Japanese indices closed little changed, mainland China remains under pressure, but Hang Seng and especially the ASX managed solid gains as markets re-opened. The ASX closed at the highest level since August 2015. U.S. stock futures are also higher and Oil prices managed to recover early losses with WTI climbing further above USD 54 per barrel. Italian confidence surprised to the upside while UK Mortgage data disappointed.

WTI crude advance further, climbing to $54.26, a better than two-week high. The December 12 top of $54.48, which represented a 16 month peak is the next upside target level. Hopes that OPEC will implement its agreement to cut production at the start of 2017 has given the market its support, though it remains to be seen how long, and to what extent the agreement holds up. In the meantime, weekly API inventory data is due in the evening in the U.S., and is expected to reveal a 1.5 million barrel draw in U.S. supplies.

Italian Confidence Was Stronger than Expected

Italian confidence data came in higher than expected, with consumer confidence jumping to 111.1 in December from 108.1 and manufacturing confidence rising to 103.5 from 102.2 in the previous month. The referendum result may have led to the demise of yet another government and for now erased all hopes that a sweeping reform of the country’s political system could pave the way for the first meaningful structural reforms in a long time, but that doesn’t seem to have dented optimism among producers and consumers. And with Draghi continuing to lend its helping hand to a country that is crippled by high levels of private and public sector debt, the ECB’s commitment to bond buying through 2017 is likely to have played a key role in the renewed improvement.

U.K. BBA mortgage approvals lower than expected. The total number amounted to 40.7K in November, while October was revised down slightly to 40.8K from 40.9K. More signs then that the housing market is slowing down, even if most forecasts still project a slight rise in house prices next year, London’s luxury house market has already been hit by the Brexit scenario and prices in the most desirable areas are down more than 10%. If financial services companies should start to relocate offices to maintain pass porting rights when the U.K. leaves the EU, this process will likely accelerate.