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Stocks Consolidate as Oil Slides Despite Solid Confidence Data

By:
David Becker
Updated: Feb 22, 2017, 13:27 UTC

European shares are mixed as the European stock rally fizzles out. European stock markets started strong following on from gains on most Asian markets

Stocks Consolidate as Oil Slides Despite Solid Confidence Data

European shares are mixed as the European stock rally fizzles out. European stock markets started strong following on from gains on most Asian markets, which in turn took their cue from the rally in the U.S. Tuesday.

The Nikkei closed slightly in the red, however, as a stronger Yen spoiled the party for exporters. Lloyds Banking Group Plc, Telefonica Deutschland and Scor were among those reporting earnings and helping to underpin European markets. Germany’s DAX managed to climb above the 12000 mark for the first time since April 2015, but in what looked like a case of buy the rumor sell the fact stock markets moved down from highs after the much stronger than expected Ifo reading.

The FTSE 100 managed slight gains as GDP growth was revised up, but it is the CAC 40 that is outperforming today. The Italian MIB meanwhile is underperforming and the Spanish IBEX is also in negative territory as the European rally fizzles out.

WTI crude prices are lower today, correcting after gaining about 1.2% yesterday, which left a seven-week high at $55.03. Prices are presently off moving back below the 54 handle. The January-3 19-month peak at $55.24 has remained unchallenged. The price action yesterday didn’t quite mark a breakout of the broadly sideways range that’s been persisting since early January.

European Inflation Remains Elevated

Final Eurozone HICP inflation was confirmed at 1.8% year over year, unchanged from the preliminary number and up from 1.1% year over year in December. The headline rate is now pretty much in line with the ECB’s definition of price stability as close to but below 2%. However, the uptick was mainly due to base effects from higher energy prices and core inflation remained at just 0.9% year over year. This is enough justification for Draghi to refer to still subdued underlying price pressures and keep the QE program on course for now. With much of the ECB’s expansionary policy an insurance against rising political risks, pressure to maintain a helping hand to volatile bond markets is rising again, even as the combination of stronger than expected confidence numbers and high inflation will keep tapering speculation alive and add to the diverging views of national central bank heads.

In the housing space in the U.S., the MBA mortgage market index sank 2.0%, while the purchase index fell 2.8% and the refinancing index dropped 1.0% for the week ended February 17. The average 30-year fixed mortgage rate rose 4 basis points to 4.36% amid jitters heading into Fed Chief Yellen’s semi-annual testimony before retreating again. The housing sector remains sensitive to mortgage rates and tight supply, though falling unemployment and rising incomes suggests some underlying support.

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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