Wall Street saw a late rebound on Friday, at the end of the worst week for US equity indices in over two years, as investors sold off on concerns over rising interest rates. The Dow ended the week 5.2% lower, whilst the S&P shed over 5.1%, with both indices entering correction territory, falling over 10% from the recent high just 3 weeks ago. There is no denying that the severity of last week’s sell off has damaged sentiment and carving out a bottom could potentially be a drawn-out process, especially given that bond yields are likely to tick up further.
Following the rebound in the US late on Friday and a mixed session in Asia, European indices are pointing to a stronger start to the week. With commodities rallying across the board and potential for Brexit induced weakness in the pound, the FTSE could find itself leading the charge in the European bourses.
WTI back above $60 per barrel?
Oil is a standout performer on the commodity front, seen moving higher after six straight sessions of losses. The strengthening dollar combined with rising oil production figures pulled WTI below $59 per barrel for the first time this year on Friday. However, the new week has seen a more encouraging start for oil which is trading over 1.3% higher and looking to tackle $60 per barrel moving through the Asian session.
UK Post Brexit Relationship To Be Unveiled
GBP/USD finished the last week over 2% lower, as Brexit concerns overshadowed a more hawkish Bank of England. Fears are growing over whether the transition period following Brexit will actually go ahead given the vast differences that still are engulfing discussions.
With a quiet U.K. economic calendar at the start of the week, Brexit is set to dominate trader’s attention, as Prime Minister Theresa May and some senior Brexit cabinet Minister including Boris Johnson, David Davis and Liam Fox are set to unveil the UK EU post Brexit relationship. These key speeches come following calls from the EU to be clearer on what the UK’s desired outcome is and as pressure is mounting on Theresa May for a “clean break Brexit” from Brexit hardliners in the Conservative Party.
GBP/USD quickly dropped through the critical $1.40 support tumbling to a 3-week low of $.13765 at the end of last week as Brexit fears took hold. Sterling has started the new week marginally higher, any Brexit disappointments could see GBP/USD head back towards $1.38 before opening to door to retest $1.3765 (low 9th Feb). Signs of the UK staying closely aligned with the EU post Brexit could offer support to GBP/USD prior to inflation figures on Tuesday. Near term resistance can be found $1.3860 before the critical $1.40 level.
Opening calls
FTSE to open 70 points higher at 7162
DAX to open 176 points higher at 12,283
CAC to open 56 points higher at 5135