Crude prices drag risk assets lower

Friday, December 12, 2014

Crude oil prices continued to act as a dampener on global risk assets as front month Brent futures slipped below $63/bbl for the first time since July 2009. The falling inflation outlook dragged European equity benchmarks lower, with the CAC, DAX and London’s blue chip index all facing firm selling pressure throughout the day as investors took flight to safe haven assets, driving government bond yields on both sides of the Atlantic lower. Ten year US treasury yields extended declines for the fifth straight session, trading towards 2.1148% after hitting resistance at the 50 day MA around 2.3065% on Monday.

Weaker than expected eurozone industrial production data saw improving investment demand for sovereign bonds issues in the region. Industrial production growth slipped from a seasonally adjusted 0.5% m/m in September to 0.1% m/m in October as the outlook for the region began to turn lower. Yields on 10 year German government bonds have fallen from  0.775% on Monday to a fresh year-to-date low of 0.629% as the economic outlook for the eurozone deteriorates. However, the euro managed to recover yesterday’s losses against the dollar, trading back towards 1.2450 after testing levels towards 1.2465 earlier on as market participants remained hopeful that the ECB would extend its stimulus measures from its current TLTRO programme to include the printing of euros in order to purchase government bonds.

Over in the US, eagerly anticipated PPI data fell in November with the final demand reading contracting -0.2% m/m, reversing direction from the previous month’s 02.% m/m reading. The data highlighted the ongoing slack in the US economy as weak inflationary pressures owing to lower crude prices saw producer prices fall by more than expected. Despite the University of Michigan confidence index showing substantial improvement in December, with the preliminary reading rising to 93.8 from 88.8 the previous month, well above expectations of a 89.5 reading, US equity markets started the session on the back foot as both the S&P 500 and DJIA were trading between 0.4%-0.8% lower at the time of writing. 

US 10 year yields drop on safe haven demand

USGG10YR Index US Generic Govt 2014 12 12 13 08 10

Eurozone industrial production falters

EUITEMUM Index Eurostat Industr 2014 12 12 13 13 26

EUR recovers yesterday's losses on stimulus hopes

EUR Curncy Euro Spot 2014 12 12 13 28 13

US PPI slips as crude oil prices drop

FDIDFDMO Index US PPI Final Dem 2014 12 12 14 49 40

Topics: Crude oil, ECB, Inflation
More from: Kash Kamal