Stocks Continue to Rise Despite Lagging Inflation

The global stock market rally continued in Europe, with the FTSE 100 reaching new record highs, but with but still underperforming Eurozone markets once again. The Swiss Market Index also managed to beat the last high from June 2007. It is the German DAX that is leading the way after a positive close in Asia, and with a stronger USD helping to underpin exporters in Europe. U.S. labor market data is coming into view now and U.S. stock futures are also moving higher, suggesting another good open on Wall Street, after the Nikkei closed with a gain of 0.89% and the ASX was up 0.74% at the close.

WTI futures are down 1% setting up crude for its biggest down day in just over three weeks. The bullish narrative is very familiar as OPEC-led supply constraint, declining global inventory levels are buoying prices, though crude has been looking ripe for a correction, with speculative positioning having hit record highs. There hasn’t been any sign that Iranian supply has been disrupted by the anti-government protests there, while U.S. shale production is ramping up, and is expected to see total U.S. production exceed 10 million barrel per day mark over the next month. WTI crude prices are up 1.6% on the week, and by 9.7% on the month-on-month comparison.

Eurozone Inflation Fell Back

Eurozone December HICP inflation fell back to 1.4% year over year from 1.5% year over year, as expected. The deceleration in the headline rate was mainly due to abating price increases for energy and food prices, leaving the rate excluding energy unchanged at 1.2% year over year and core inflation at 0.9% year over year. The latter was slightly below consensus and will add to the arguments of the doves at the ECB. Still, while headline numbers seem to support the ECB’s very cautious approach to the phasing out of net asset purchases November PPI inflation jumped higher to 2.8% year over year from 2.5% year over year. Again energy price fluctuations are partly to blame, but with PMI surveys suggesting capacity constraints and still strong underlying price trends and labor markets improving further, the overall data picture still suggests a gradual rise in headline rates ahead, even if base effects will lead to some fluctuations.

French consumer confidence rose to 105 from 103 in the previous month, as consumers turn less pessimistic about the future standard of living as well as purchasing opportunities, with the latter in particular a sign that consumption will continue to underpin overall growth as the labor market improves.