Stocks Drop as Oil Prices Weigh on Energy Shares

European stock markets are falling, as the drop-in oil prices weighs on energy producers and disappointing earnings added to the latest bout of risk aversion, which hasn’t helped the regions bond futures either. Stock markets already headed south during the Asian session, with only Japanese bourses managing slight gains amid a weaker Yen. U.S. stock futures are also down and WTI is falling further below USD 50 per barrel, following a larger than expected build in inventories according to the American Petroleum Institute.

The housing sector continues to improve in the UK. UK BBA mortgage approvals exceeded expectations, at 38.8k in September data, up from 37.2k in August and above the median forecast for 37.3k. The data provides a leading indicator of house prices. Mortgage lending totaled GBP 2.0 billion, up from GBP 1.1 billion in August but below the GBP 2.5 billion seen in the same month last year. The BBA reported that the BoE rate cut in August has underpinned lending.

Oil prices are down for a second day following weekly data from API showing U.S. inventories rose by 4.8 million barrels, larger than the 800K expected. Oil inventories have declined for 6 out of the last 7 weeks.  The focus will now turn to the weekly EIA report, which last week showed a 5.2 million barrel drawdown, last week and expectations are for a 1 million barrel increase. There is also a news narrative that Iraq, Iran, Nigeria and Libya will be dissenting the OPEC production cut.

Confidence in Europe is mixed. The German GfK consumer confidence dropped to 9.7 in November, from 10.0 in October. There is no breakdown for the November projections but the fall back was unexpected and disappointing, especially after the stronger than expected Ifo and PMI readings this week. The breakdown for October showed a marked improvement in business cycle expectations, which jumped to 13.0 from 6.8, the highest reading since June, which suggests that the Brexit shock was short lived. Despite this income expectations declined sharply as did the willingness to buy, although the willingness to save also slumped amid the low interest rate environment. Mixed messages then and at least in Germany it seems Draghi’s policy of easy money is not lifting consumption.

In France, sentiment was better than expected. The French consumer confidence rose to 98 from 97 in the previous month, with future sentiment on the personal financial situation and the standard of living improving in October, although both remain firmly in negative territory. At the same time expectations for savings capacity dropped, which is suggests that the ECB’s low interest rate policy is having the desired effect at least in France, although German data earlier painted a very different picture.

The treasury reported a dismal 2-year auction. Treasury’s $26 billion 2-year auction was worse than expected given the notion that the Fed is likely to pull the trigger in December and increase the Fed fund rate. The 2-year-note terminated at 0.855%, close to the 0.856% at the bid deadline.