Risk Aversion Returns Despite Robust German Ifo

Risk aversion has picked up on Monday morning with European stock markets heading south.  Eurozone markets and especially Eurozone peripherals are under-performing. Lenders in particular are under pressure, led by a slump in Deutsche Bank AG amid growing concerns about the bank’s capital buffers. Energy producers and miners are also down ahead of the OPEC meeting this week and as markets are not quiet buying into Algeria’s announcement that Saudi Arabia offered to cut back output to January levels. This comes despite higher oil prices with WTI up more than 1% on the session and recapturing the 45 per barrel handle. A stronger than expected German Ifo reading failed to give a lasting lift to the DAX, while U.K. mortgage lending data suggests a softening of the housing market.

Brent crude is up 1.6%, recovering some of the 3%-plus declines of Friday, while WTI is higher by slightly more than 1% recapturing the 45 per barrel handle. Algeria’s energy minister, accelerated the climb in prices by saying that Saudi Arabia had offered to cut its production to January levels. Oil prices will likely continue to be whipsawed by jawboning as traders await the inventory data which is scheduled to be released on Tuesday evening ET the by API and Wednesday morning ET by the EIA.

German Ifo Was Stronger than Expected in September

German Ifo shows broad improvement in confidence, with the details of the diffusion index, which gives the balance of positive and negative answers showing improved sentiment across the board, with manufacturing and retail trade leading the way. The headline reading jumped much more than expected to 109.5 compared to expectations of an increase to 106 in September. All sub-indexes are in positive territory, indicating that optimists outnumber pessimists and the Ifo services reading also improved markedly – to 32.2 from 29.8, which seems to contradict the dip in the German Services PMI, which has moved dangerously close to the 50 point no change mark. By contrast the Ifo reports improvements in both current conditions and expectations readings, suggesting that the German recovery remains on track.

UK mortgage lending cooled in August data, with the BBA approvals measure dipping to a new cycle low of 36.97k from 37.67k in July. The BBA said that its monthly data is pointing to a softer housing market, though highlighted that the data were collected before the BoE cut the base interest rate to 0.25% in mid-August. A hike in the rate of tax for investment property purchases in April is widely blamed for the recent downturn in the property market, irrespective of the Brexit vote.

August new home sales data is out on Monday in the United States and should reveal a decline to a 597k pace from a 654k pace in July that set a post-recession high. Other housing measures have been weaker in August with the MBA purchase index down 4.5% and existing home sales slowing 0.9% to 5.330 million.