The Rally in European Stocks Runs out of Steam

European stock markets are mixed as the Trump rally runs out of steam and investors start to turn cautious after pushing indices to lofty highs. Markets still moved higher in Asia with the ASX leading the way, but Hang Seng and CSI 300 closed in the red and while DAX and FTSE 100 managed to close above levels of 12000 and 7300 respectively Wednesday markets once again seem to need further impetus to extend further, especially as the Fed is eyeing a March rate hike and pressure on Draghi is also increasing as inflation jumps higher while confidence data improves.

WTI crude prices are down for a second day, having ebbed under $53.50, posting a low a two-session low at $53.30. Tuesday’s two-week low is at $53.18. Data this week showing a new record level of crude inventories is keeping prices pressured, although the rise in official EIA data in the latest reporting week was below expectations.

Eurozone Unemployment is Steady at 9.6%

Eurozone unemployment remained steady at 9.6% in January, unchanged from the previous month and by Eurozone standards at relatively low levels, although difference across countries remain very high, especially amid those under 25, which is also fueling political tensions and the rise of anti-Eurozone and anti-EU sentiment.

Eurozone February HICP inflation rose to 2.0% year over year, thus hitting the upper limit for price stability not a surprise after the higher than expected German number. So far base effects remain the main driving factor and core inflation remained steady at 0.9% year over year, which will back Draghi’s stance. Still, with January PPI inflation hitting 3.5% and headline rates moving higher while growth indicators continue to improve in conjunction with the labor market, the hawks at the council are getting more vocal. Bundesbank President Weidmann highlighted yesterday that inflation projections, must be revised considerably higher, not just for the Eurozone and pressure is mounting for Draghi to at least tweak the forward guidance and remove the reference to the possibility of further rate cuts at next week’s council meeting, when the ECB has the updated set of staff projections. The QE schedule will almost certainly be left untouched as Draghi and Co will be eager to assure markets that the ECB will maintain its helping hand at times of high uncertainty on the political front.

Swiss growth and retail sales have disappointed, with Q4 GDP growing by 0.1% quarter over quarter and by 0.6% quarter over quarter, below the Bloomberg median forecasts for 0.4% and 1.3% growth, respectively, and with retail sales contracting 1.4% year over year in January numbers, following a -3.4% year over year reading in the month prior. The data contrasts the picture painted by the February KOF leading indicator, which suggested that the economy will expand in the six months ahead, driven by improving economic conditions in the Eurozone economy.