Crude oil consolidated after breaking out as traders await the government’s inventory report. Stronger than expected Japanese retail sales and industrial production weighed on the Nikkei. Eurozone peripherals outperformed led by Italy, where the 10-year dropped -1.5 basis points after a successful 10-year auction. Sluggish trading is like likely to exaggerate moves especially in the smaller markets as the ECB remains absent over the holiday period. Both Bund and Gilt yields are up from earlier lows, however, as stock markets headed further south. The DAX is down along with the CAC as a weaker USD is weighing on sentiment.
WTI futures are near flat on the day at $59.70, continuing the consolidation seen after two-and-a-half-year high was logged on Tuesday at $60.01. The prevailing dominant narrative in the crude market is of expectations for sufficient supply discipline among the OPEC-led effort to underpin prices on the one hand, and expectations for robust global demand on the other. There also seems a popular view that sustains gains above $60.0 may be difficult, with high prices increasing the quantity of viable oil fields, particularly in North America. U.S. crude production is expected to hit record highs above 10k barrels per day over the coming months.
Japan November retail sales beat estimates
Sales climbed 1.9% on the month, bouncing from the 0.1% October decline which was revised from unchanged. Strength was in department store sales which climbed 3.0%. The annual pace popped to a 2.2% year over year clip versus -0.2% year over year, with retail up 2.2% year over year versus -1.5% year over year. Total store sales increased 2.1% in November after a 1.8% October gain.
Japanese Industrial production rose 0.6% last month after rising 0.5% previously, also beating expectations. Gains in general machinery production, electronics, and petroleum/coal supported. Production of chemicals and plastics were dragged. Compared to last year, production slowed to a 3.7% year over year rate versus October’s 5.9%. Improved economic activity abroad and at home has supported this year’s rally in the Nikkei to levels not seen since early 1992.
UK mortgage approvals underwhelmed expectations, falling to 39.5k in November from a downwardly revised 40.4k figure for October, according to BBA data. The median had been for 40.5k, while the 39.5 figure is the lowest level of approvals since August 2016. The downward trend in the data series portends less intense demand for residential property three or four months down the track.