European Stocks Edge Lower as Oil Consolidates its Recent Gains

European stock markets are mostly down, as crude oil prices continue their torrid climb higher. Stronger than expected German manufacturing orders, and somewhat reduced ECB tapering fears helped to underpin markets in early trade, but the DAX has already lost gains Eurozone markets are now mostly slightly in the red with the FTSE 100 under performing. Oil prices meanwhile are up from earlier lows, with WTI holding firmly above USD 50 per barrel. Oil prices hit $50 per barrel for the first time since June on Wednesday following an unexpected draw in crude oil inventories as reported by the Department of Energy.

Global bonds are heavy on a shift to a less dovish stance from key central banks in early Q4 action. The upward momentum in sovereign rates has key shops projecting further upside risk with the T-note likely to hit 2.0% this year. It’s currently testing 1.73%, with the 200-day moving average standing in its way at 1.75%. Meanwhile, the policy sensitive 2-year yield has climbed to 0.851%, the highest since June 2 when Fed tightening fears were prominent.

Federal Reserve hawk Lacker claimed that interest rates could increase at a faster pace in his comments at Marshall University. His remarks are in line with other Fed governors and Presidents including Chair Yellen, who have indicated that the economy can handle higher rates. Lacker seems to believe that subdued inflationary pressures have declined, and price pressures will begin to increase toward the Fed’s 2% target rate.

In Europe, Switzerland’s KOF institute upgraded its GDP forecast to 1.6% in 2016, 1.8% in 2017 and 1.9% in 2018, which would mark a recovery from the slump to 0.9% annual growth that was seen in 2015, which was the lowest expansion in six years. The institute said that inflation should slowly lift into positive figures in 2017.

The recent stronger than expected European data has lifted yields on the continent which is reflected in sovereign financing costs. The French refinancing costs rose at 10-year auction. France sold EUR 3.16 billion of 10-year bonds at an average yield of -0.28%, slightly higher than the 0.26% paid at the last 10-year auction. 2031 bonds were sold at an average yield of 0.6% and 2066 bonds sold at 1.43%.

Producer sentiment surveys are on the move higher which was reflected on Thursday in Germany. The German construction PMI rose to 52.4 from 51.6 in the previous month. Together with the rebound in the manufacturing PMI and the stronger than expected German order numbers, reflect a further sign that the German recovery remains in track for now.

Inflation though is subdued. The Swiss CPI ebbed back to -0.2% year over year in September from -0.1% in August, contrary to the median forecast for an unchanged reading. The SNB-induced stability in the Swiss cross over the last year and more has helped CPI track back to near zero from the cycle lows of -1.4% year over year that were seen between August and November last year.