The mood in Europe is poor this morning with broad losses following some earlier grim German data, higher oil prices and a weak session on Wall Street. Yields held higher with the US 10-year at 4.276 per cent, nudging up to the highest in two weeks after the oil price rose on the Saudi-Russia production pact. With yields firming again the dollar rallied to its highest since March while gold cracked at the 50-day line.
Housebuilders led the FTSE 100 0.75 per cent lower as Barratt Developments (BDEV) reported a fall in profits as mortgage rates moved higher, with just six stocks gaining any ground in early trading. More on that here
The Dax also slipped, falling 0.23 per cent to build on losses in the prior two sessions this week. There were some big moves in Chinese real estate stocks on hopes for more support but Chinese indices were mixed overnight amid a rather lacklustre session in Asia, though Tokyo rose 0.8 per cent. Wall Street was down, with the S&P 500 dropping 0.4 per cent, though XLE, an energy sector index, rose 0.5 per cent as energy stocks firmed on the oil shift. Weighing on sentiment was the 11.7 per cent decline in German factory orders, well below the expected 4.3 per cent drop. Higher oil prices are also weighing as the Stoxx 600 slipped 0.5 per cent to a one-week low, extending its run of losses to six sessions.
Crude oil surged higher yesterday as Saudi Arabia and Russia said they would extend production cuts through to the end of the year. While we’d had hints last week, the official announcement that the combined 1.3m barrels per day in voluntary cuts by Russia and Saudi Arabia nevertheless underpinned a strong bid for crude futures and suggests a widening deficit in global supply this year. It comes against fears of a major slowdown. Remember higher oil means people worry about higher inflation and credit. The Fed’s job may not be done...the inflationary paradigm is different and central banks are going to have to accept 3 per cent rather than 2 per cent.
Oil pared gains, with traders assessing whether the moves by OPEC+ can be offset elsewhere; for instance, with rising output from Iran. Whilst oil pulled back from yesterday’s highs, WTI futures (Oct) still trade about $1 higher than before the announcement.
The Trader is written by Neil Wilson, chief market analyst at Finalto
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