Europe midday: Stocks led higher by surge in basic resources

European equity markets edged higher, underpinned by strength in the basic resources and oil and gas sectors, as investors shrugged off another disappointing German data release.

At midday, the benchmark Stoxx Europe 600 index was up 0.4%, France’s CAC 40 was 0.5% higher and Germany’s DAX was up 0.8%.

The Stoxx 600 basic resources index surged 5.3% as metals prices advanced, while the corresponding index for oil & gas index rose 2.8% as oil prices resumed their upward climb. West Texas Intermediate was up 1.7% at $49.35 a barrel and Brent crude was 1.5% firmer at $52.68 a barrel.

Oil prices surged on Tuesday after the Energy Information Administration estimated that crude production in September was down 120,000 barrels a day from August and said output is likely to continue to decline through next August. In addition, the American Petroleum Institute reported a weekly US crude stockpile draw of 1.2m barrels.

On the downside, though, airline stocks such as Easyjet, Ryanair, IAG and Deutsche Lufthansa were under the cosh as higher oil prices drive up fuel costs and following a downgrade of the sector by Credit Suisse.

“The weakness in the US dollar can in some ways explain some of the current upside, both in equities and most importantly commodities,” said Brenda Kelly, head analyst at London Capital Group.

“The Fed’s failure to act in September and the weaker than expected jobs numbers last week have essentially pushed expectations for a rate hike to at least the end of the first quarter in 2016 and even then it’s precarious given the poor first quarter GDP growth we’ve come to expect from the US on the basis of bad weather.”

Miners also got a lift from a bullish note by Morgan Stanley, which upgraded its stance on Rio Tinto, BHP Billiton and Anglo American as it lifted its view on the European metals and mining sector to ‘attractive’ from ‘in line’.

As far as the sector as a whole is concerned, it said stable data from China in the last few months with a potential uplift from recent financial and administrative stimulus policies should increase conviction that the 19% commodity price uplift by 2017 in the bank’s base case deck is achievable.

On the corporate front, SABMiller rose after it said Anheuser-Busch InBev was “very substantially undervaluing” the London-listed brewer with its latest offer of £42.15 per share..

Volkswagen shares pushed higher after chief executive Matthias Mueller said in an interview with a German newspaper that the company would launch a recall for cars affected by its diesel emissions crisis in January and complete the fix by the end of next year.

Supermarket retailer Tesco reversed early losses to trade a little higher. Although it posted a 55% drop in first-half operating profit, the figure still came in above analysts’ expectations.

Brewer Diageo nudged lower after saying it has sold its interests in Desnoes & Geddes and Guinness Anchor Berhad to Heineken NV and bought additional shares in Guinness Ghana Breweries.

Shares in retailer Marks & Spencer fell after JPMorgan Cazenove downgraded the stock to ‘neutral’ from ‘overweight’.

Figures released earlier by the Economy Ministry showed German industrial production unexpectedly fell in August, at its fastest pace in a year. Output dropped 1.2% from a revised 1.2% increase in July and against expectations for a small increase.

On Tuesday, German industrial orders also disappointed, showing a 1.8% month-on-month decline in August, compared with expectations for a 0.5% increase.