European markets have started in a positive manner first thing this morning as they look to shrug off yesterday exaggerated losses. Asian markets failed to bounce to much higher despite the falls yesterday, although they still did finish in the green and that is no mean feat after the deluge of selling on Wall Street. However it is Wall Street that is giving European markets a nice early bounce this morning after both the Dow and S&P 500 clawed back from their lows as we approached the close yesterday. Today’s session looks to be fairly light of any key economic data, however German unemployment and UK construction PMI could well give investors something to get their teeth into.
A key area to highlight this morning is the retailers as they act as a weight on any European gains. The next couple of weeks will be important for the retail sector as they begin to announce trading updates which include the festive trading period. Next have kicked this off this morning and have disappointed, blaming the warmer December for a slump in sales. Shares in Next fell over 4% dragging Marks & Spencer and Primark owner AB Foods (L:ABF) down with it on the expectations of more bad news to come.
Oil prices will yet again be a defining factor for traders as despite tensions between Saudi Arabia and Iran the Nymex crude oil price continued to slide, despite initially posting gains. A continued move lower in oil could well see the initial positive moves in European equity markets wiped out, it seems investors are undecided as to whether market conditions warrant risk on or risk off position taking. Gold prices will give us an insight into this after posting solid gains yesterdays as the major indices fell, as gold rose it pushed through some key upside levels leaving us open to more gains towards the $1,080 level again.
The key piece of data today will come from the Eurozone as the flash CPI release is due out, and officials will be hoping to start to see a pick up in the reading as last year’s big moves in oil and energy prices start to drop out of the yearly comparison. This means that inflation data will be far less about a big decline in energy prices and more about key goods and services important to the economy. The problem will come if we see this energy price comparison drop out but inflation continue to fall. That could cause Mario Draghi and the ECB huge issues and could be the catalyst for yet more easing in monetary policy, which in turn causes an even bigger divergence between the US and European economies.