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Oil Prices Edge Higher but Fail to Lift European Equities

By:
David Becker
Updated: Jan 19, 2017, 13:24 UTC

European stock markets are heading south, with the FTSE 100 underperforming as Sterling moves higher. DAX and CAC 40 lost earlier gains and are also down

Oil Prices Edge Higher but Fail to Lift European Equities

European stock markets are heading south, with the FTSE 100 underperforming as Sterling moves higher. DAX and CAC 40 lost earlier gains and are also down as investors hold back ahead of the ECB announcement. Asian markets closed mixed, with the Nikkei managing a 0.94% gain as the Yen fell against the dollar following comments from Yellen yesterday saying she expects to hike rates few times a year through 2019 to 3% neutral rate. Energy producers and miners meanwhile led a decline in Chinese stocks and shares, as oil prices lifted up from yesterday’s lows, but WTI remains firmly below USD 52 per barrel, despite a larger than expected draw in crude oil inventories reported by the API.

Oil prices edged slightly higher on Thursday following a reported from the International Energy Agency that said that the agency saw inventories tightening ahead of OPEC cuts could take place.  The EIA said it was hard to gauge OPEC’s effect on the market to date. The agency raises its 2016 demand estimates.

Meanwhile the American Petroleum Institute (API) reported on Wednesday evening that crude oil inventories declined at a larger than expected rate dropping by slightly more than 5 million barrels compared to the 1-million-barrel draw expected by analysists.  This was offset by a larger than expected 9.75-million-barrel build in gasoline inventories.  Distillate inventories which include products such as heating oil and diesel dropped by 1.2 million barrels in the latest week.

Spanish bond sale reflects steepening of yield curve. Spain sold 5-year bonds at an average yield of 0.399%, up from 0.27% on January 5, while at the same time, the yield in the 2-year bond auction dropped to -0.234% from -0.008% on November 17, when the paper was last auctioned. With the ECB cutting the minimum duration of bonds eligible for the asset purchase program to just 1 year and removing the deposit rate limit, the short end continues to outperform, while the jump in inflation numbers is pushing up long term yields, something officials seem to be welcoming to a certain extent, with some arguing that the rise in long term yields will help banks.

The Eurozone posted a current account surplus of EUR 36.1 billion in November, up from EUR 28.4 billion in the previous month. The goods surplus widened to EUR 30.9 billion from EUR 25.9 billion and the primary income surplus also improved sharply, which helped to compensate for the drop in the services surplus. The unadjusted financial account showed direct and portfolio investment outflows of EUR -6.3 billion, in November, which still left total inflows of EUR 728.1 billion in the 12 months to November, versus EUR 273.9 billion in the 12 months to November 2015.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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