Yield Begins to Climb Weighing on Stock Prices

European yields are steady to higher as Treasury yields jump 4.2 basis points to 2.595% as the dollar initially dipped on a report that China thinking of downsizing dollar assets. The ECB’s reduction in purchase volumes is being felt as supply resumes with a vengeance this week and the disappointing Bund auction clearly spooked traders at least temporarily. Stock markets are mostly heading south as the BoJ’s implicit tapering and the German auction result acted as a reminder that central bank support is slowly being phased out.

WTI crude logged a fresh 37-month high of $63.59. Prices are up 1% on the day, receiving a push higher by a broad drop in the dollar amid reports that China is considering reducing its purchases of U.S. Treasuries. This follows the weekly API report, that showed a 11.2 million n barrel reduction in U.S. crude inventories in the latest reporting week, which has fed market expectations for a bigger than anticipated draw in the official EIA figure later today. The EIA also raised its 2018 world demand growth forecast by 100k barrels per day.

The UK Trade Deficit Widened in November

The UK’s trade deficit blew out in November, with the total trade figure expanding to a deficit of GBP 2.8 billion. The rise was driven by a visible goods deficit, which rose to GBP 12.2 billion from GBP 11.7 billion which was revised from GBP 10.8 billion. The data was released simultaneously with UK production data. The pound rallied in the initial wake of the data release as markets reacted to the above-forecast headlines in the production figures, but has since more than given back these gains as market participants digested the offsetting deficit blow out.

UK November production data beat expectations, with industrial output rising 0.4% month over month and 2.5% year over year from upwardly revised growth of 0.2% month over month and 4.3% year over year in the previous month. The median forecasts had been for 0.4% month over month and 1.9% year over year growth. The narrower manufacturing production figures showed 0.4% month over month and 3.5% year over year expansion, up on the respective median forecasts for 0.3% month over month and 2.8% year over year. The ONS stats office noted broad growth in the manufacturing sector spread over the duration of Q4. The data affirms the zing that was evident in the sector for most of 2017, underpinned by robust domestic and export demand, the latter aided by strong global growth and a competitively valued currency.