EU Inflation Prospects improve, More Russian Sanctions On Hold

Europe

Positive sentiment over the prospect of a delayed tax-hike in Japan spilled-over into European shares on Thursday which got a further lift from inflation above expectations in France and Spain with gains tempered somewhat by disappointing Chinese data.

Shares in Tokyo continued their surge within a backdrop of government intervention and speculation over a delayed sales tax hike and the possibility of snap elections.

Chinese industrial production rose at a slower annual rate of 7.7% while retail sales growth slowed to 11.5% in October. The rate of growth in China’s economy is still far and above that seen in the developed world but the trajectory is down negatively impacting business investment. Digging deeper into the data it can be seen that industries tied to China’s housing market are suffering the most as the housing bubble in China continues to deflate.

Crude Oil prices slipped again on Thursday and UK markets were weighed down by energy shares including BP Plc (LONDON:BP) and Royal Dutch Shell A (LONDON:RDSa) while Total SA (PARIS:TOTF) was a drag in France.

Germany's CPI met expectations with a yearly rise of 0.8% in October while France and Spain both exceeded expectations with a 0.5% and 0.1% rise respectively. Chances of a higher than expected Eurozone CPI number tomorrow has clearly improved after Thursday’s individual country inflation data.

There have been reports of Russian troops entering Ukraine in recent days but Moscow has denied its involvement. There was some fear in markets on Wednesday that the EU may institute a new series of sanctions. The existing set have already negatively impacted Eurozone growth so there is an understandable split amongst EU leaders over the need for more. Russian GDP growth slowed to 0.7% in the third quarter but beat expectations despite the sanctions and falling Crude Oil prices.

US

Jobless claims were slightly higher than seen in recent weeks but strong earnings from Wal-Mart Stores Inc (XETRA:WMT) and news ofBerkshire Hathaway Inc (NYSE:BRKa)  purchase of Duracell from Procter & Gamble Company (NYSE:PG) provided a source of optimism for US shares on Thursday.

FX

The US dollar was mixed against major currencies on Thursday as diverging international economic data took precedent.

GBP/USD dropped to a 14 month low through 1.58 following on from dovish Bank of England comments on Wednesday.

Stronger CPI data gave EUR/USD a chance to squeeze those short the pair; whether 1.25 can be breached to the upside will likely be determined by tomorrow’s GDP data.

Commodities

Oil prices dropped again on Thursday after Saudi Arabian spokesmen rejected talk of market share and/or price wars with US shale production and/or other Arab producers.

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