Buoyant Europe, oil powers ahead
Stock markets in Europe are showing modest gains this afternoon. Germany’s DAX is up following the country’s general election yesterday. The centre-left Social Democratic Party (SDP) marginally defeated the long standing Christian Democratic Union and secured the largest number of votes. There is speculation the Green party could wind up in a coalition government, along with the two major parties. Going into the election, there were some mild fears the socialist party, Die Linke, could end up being a member of a possible coalition, but in light of their poor performance, that scenario has essentially been ruled out, so equity traders reacted well to the news.
Natural gas is powering ahead, and the sharp move higher is fuelling a rally in oil. Brent crude traded above $79, its highest reading since October 2018. What started out as creeping supply concerns for the energy market, has now become a serious worry for the winter ahead. There is a feeling in the markets that OPEC+ are acting too slowly to lift output, and this comes at a time when economies are picking up as they rebound from the pandemic. It was reported that India’s oil imports for August hit a three month high, so it seems the recovery is gaining momentum. The headlines in the UK that some filling stations are running out of petrol has contributed a little to the erratic behaviour in the energy market too.
The US dollar saw a lot of volatility due to last week’s Federal Reserve meeting, and since then it has broadly been moving higher. The US central bank indicated it would start to taper its bond buying scheme soon, as long as the US economy continues to rebound at a respectable rate. It was revealed the US durable goods reading for August was 1.8%, which comfortably topped the 0.7% forecast, it was the highest level in three months. Consumer activity is crucial for the US’s rebound, so the report was well received. Gold is down again today as the firmer US dollar has hit the metal.
Christine Lagarde, the head of the European Central Bank, reiterated the view that the uptick in inflation will be temporary. The central banker also cautioned the economic rebound would depend heavily on how the pandemic plays out. The euro is weaker across the board.