Oil Rally Buys European Stocks Despite Dip in Inflation

Eurozone stocks have rebounded on Friday after selling of Friday in the wake of stronger than expected inflation figures. A better than expected Chinese PMI report gave a boost to the Shanghai, which spilled over into European shares.  Eurozone inflation dipped in June but French consumer spending increased in May.  WTI continues to move higher and has rallied for 4 consecutive trading sessions, despite an unexpected build in crude oil inventories reported this week.

Oil prices have remained buoyant, with WTI showing a 0.4% gain relative to yesterday’s closing level, at $45.30, though has remained below yesterday’s $45.44 peak, which is the loftiest level seen in two weeks. Crude markets have been underpinned by data on Wednesday showing a dip in U.S. production, which reflects curtailed supply from costly shale mining operations following five weeks of price declines.

China’s official manufacturing purchasing managers’ index increased to 51.7 from 51.2 in May. The June reading beat a median forecast of 51.1. The sub-index measuring new orders climbed to 53.1 from 52.3 in May, while the production sub-index strengthened to 54.4 from 53.4. China’s official nonmanufacturing PMI, also released Friday, rose to 54.9 in June from 54.5 in May.

Eurozone HICP Inflation Dipped in June

Eurozone June HICP inflation fell back to 1.3% year over year from 1.4% year over year in the previous month. The number was slightly above expectations of a 1.2% increase. Core inflation rose to 1.1% year over year from 0.9% year over year. The fact remains that the ECB is heading for QE tapering from early next year, even if Draghi remains reluctant to commit to reduced purchase volumes just yet.

French consumer spending jumped 1.0% month over month in May, after 0.3% month over month in April. The annual rate lifted to 1.3% year over year form -0.5% year over year and together with the positive German retail sales data at the start of the session the numbers back expectations for ongoing positive contributions from consumption to overall growth.

French June HICP inflation fell back to 0.8% year over year from 0.9% year over year in the previous month. The data were in line with expectations, with prices unchanged month over month. Germany’s unexpected rise in the HCIP rate yesterday looks increasingly like the odd one out.

Switzerland’s KOF Institute June leading indicator beat forecasts, rising to a headline reading of 105.5, up from 102.0 in May, which was itself revised upward from 101.6. The median forecast had been for a more modest rise to 102.5. The indicator attempts to portend economic activity six months down the track.