Weak German Production Data Weighs on Riskier Assets

European stocks markets are mixed and bond yields are moving higher as the Euro continues to hover around 1.18 against the Dollar. German production data unexpectedly dropped over the month, but still showed very robust growth on a quarterly basis, which leaves rooms for an upside surprise on GDP. More arguments then for QE tapering, next year, although the strong EUR will see Draghi remaining cautious for now. The DAX is currently down and the FTSE 100 outperforming and holding on to a modest gain, but also down from earlier highs. European yields remain below recent highs, but after robust U.S. data on Friday initially boosted sentiment on stock markets and continued to underpin broad gains in Asia, investors are starting to remember that an improved global growth outlook also means less monetary support going ahead.

WTI crude is down 1.0% trading near the $49 handle, with prices tumbling out of intraday gains, which left a two-session peak at $49.51. The WTI benchmark logged a nine-week high at $50.43 last week, but crude remains 10.6% up from a month ago. Market participants are looking to the OPEC and non-OPEC technical meeting in Abu Dhabi today and tomorrow, which is discussing output quota compliance, for the next directional clue.

UK Housing Prices Growth Eased in July

UK house prices growth eased to a 2.1% year over year growth rate in the July Halifax index, the lowest annual reading since April 2013. Prices gained 0.4% in the month over month comparison, partially rebounding from a 0.9% month over month contraction in June which was revised slightly upward, from -1.0%. House prices contracted by 0.2% in the quarter over quarter comparison, which is a better gauge on the underlying direction of the market. This was the fourth consecutive quarterly decline, marking the longest run of declines since 2012. Stagnation in the market has come despite the rising employment and the lowest rate of unemployment since 1975, and chronic supply tightness that is characteristic of the UK property market. Declines in inflation-adjusted income, along with richly priced housing, which is near record highs in terms of price to disposable incomes and price to rent ratios, have exerted a downward tilt on house prices. The recent rise in political uncertainties, along with uncertainties about Brexit, are added negative factors in play.

German industrial production unexpectedly dropped -1.1% month over month in June. After the much stronger than anticipated orders number last week the correction in production is disappointing, especially as it comes despite another relatively robust rise in energy production. Manufacturing and mining corrected -1.4% month over month in June, construction dropped for a second consecutive month. This is the first decline this year and while it ties in with a correction in German PMI readings, strong orders growth in the second quarter of the year still points to a recovery and ongoing robust growth ahead.