Stocks Trade Sideways as Oil Recovers But Data Continues to Impress

European stock markets are little changed, with core markets under-performing and Italian and Spanish equities still moving higher, as better than expected December PMI readings not just for the Eurozone and the U.K. but also in Japan, China and the U.S. lifted growth optimism and risk appetite. FTSE and DAX are moving sideways after oil prices fell back below USD 53 per barrel and put pressure on energy shares.

Eurozone PMI Readings Were Better than Expected

The Eurozone final PMI readings better than expected, with the services number revised up to 53.7 from 53.1, which after the manufacturing reading was confirmed at a strong 54.9 on Monday, brought the composite to 54.4, up from 53.9 in November as well as in the preliminary reading. So, 2016 ended on a high for the Eurozone economy, with the composite reading at the highest level since 2011. The country breakdown brought some mixed news, and saw a marked upward revision to the German services reading, while Italian and Spanish services numbers came in somewhat weaker than anticipated. Still composite PMIs rose across the board and are clearly above the 50 point no change market in all four major Eurozone countries, which confirms that this is a broad-based recovery.

Eurozone December HICP inflation rose to 1.1% year over year, up from 0.6% year over year in the previous month. The number was broadly in line with initial expectations, but lower than we feared after the very perky German and Spanish numbers. Italian HICP, which was released at the same time, rose to 0.5% year over year from 0.1% year over year and the breakdown for the Eurozone number confirmed that base effects are the main reason for the rise in the headline rate with negative base effects from energy prices falling out of the equation in December.

Annual energy price inflation jumped to 2.5% year over year from -1.1% year over year in November, and food price inflation also accelerated sharply. but core inflation also ticked slightly higher – to 0.9% year over year from 0.8% year over year, as services price inflation picked up. All in all, the rise above the 1% mark at the end of 2016 left the headline rate at the highest level since September 13 and not only seem deflation risks well and truly banned, the data also indicates some upside risks going ahead.

UK lending figures were mixed in December, according to BoE data. Mortgage approvals lifted to an eight-month high of 67.5k, fractionally up on the 67.4k reading in November, but below the median forecast for a more pronounced rise 68.7k. However, net mortgage lending fell to four-month low of GBP 3.2 billion. Net consumer credit rose 1.9 billion, which is the largest monthly rise in 11 years, but net lending to non-financial business dropped by GBP 0.8 billion.

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