Stocks Continue to Surge as Confidence Builds and Markets Shrug off Missile Tests

European stock markets moved broadly higher, with almost any sector in the Stoxx 600 in the green, following on from gains on most Asian markets and Wall Street Tuesday as investors seem to shrug off the North Korea missile launch and focus on Trump’s tax cut plans. Strong Eurozone ESI data underpinned the upside risks for the Eurozone growth outlook and while the FTSE 100 is underperforming, this is largely due to the rally in the pound following reports that EU and U.K. negotiators reached an agreement on the Brexit “divorce bill”, which could pave the way for early trade and transition talk. The wider FTSE 250 and the FTSE Smallcap index are posting gains and in the longer run, positive Brexit news should underpin investor appetite. U.S. futures are also moving higher and oil prices are down, following a larger than expected build in crude oil inventories according to the API, with WTI trading at USD 57.48 per barrel.

European Economic Confidence Rose in November

Eurozone ESI economic confidence rose to 114.6, in line with expectations and up from 114.1 in the previous month. This is the highest reading since October 2000 and a further confirmation that the Eurozone recovery is stronger than anticipated, with improvements in industrial services and consumer confidence. The latter was confirmed at 0.1, in line with the preliminary reading and the first time since August 2000 that the reading is in positive territory. Clearly, unless there is an unexpected deterioration in confidence and data the ECB will end asset purchases in September next year and even the January to September extension of the QE program is looking questionable in the light of these numbers.

German state inflation numbers picked up in November, with annual rates in 4 of the states rising between 2-4% points, more than expectations for a 0.2% point rise in the pan-German headline rate. By contrast, preliminary Spanish HICP came in lower than anticipated and remained steady at 1.7% year over year, against expectations for a rise in the annual rate to 1.9% year over year. Mixed signals then so far for the Eurozone number, although if the German number comes in higher than anticipated, as seems likely now, this would compensate.0 for the weaker than anticipated Spanish reading.

UK lending data showed a slight dip, with mortgage lending and unsecured consumer lending dipping to GBP 3.4 billion and GBP 1.5 billion, respectively, while mortgage approvals ebbed to 64.6k from 66.1k. Lending fell to the lowest level since September last year.