In keeping with recent headlines, lets focus on stocks. Overnight we have seen a relief rally on Wall Street as the Dow reversed some of its losses from Monday to post gains of 567 points. However to think that the markets are now back in bull market mode and traders are looking to buy the dips would be naïve, as so far today Dow futures are pointing to a 300+ point fall on the open on Wall Street later this afternoon.
I think we have to look towards stock bargain hunters for yesterday’s moves as many came out look to pick up cheap stock after the last few days of downside. Add that to gains from Apple (NASDAQ:AAPL) and the gains were always going to come. However it wasn’t a simple session, with a huge range on the day that at one point had the Dow lower by over 300 points. The question everyone is asking is just where this leaves global equity indices, and my answer would be still risk off and incredibly nervous. Even though we have seen a big sell off the markets are still in line for a correction, which would be deeper than what he have currently seen. For me this is not about economics, rate hikes or the inflation picture, it’s a case of a market needing to put the brakes on a reevaluate its value.
Elsewhere the US dollar has found suffered a little after strong gains yesterday, with EURUSD and GBPUSD finding bids at their lower levels. It’s looking pretty quiet in terms of big macro data for today’s session so yet again a focus on Fed speak, this time from Evans could give us the main focus for later this afternoon. So especially for sterling it could be case of waiting for tomorrow BoE announcement for any kind of large moves after bouncing quite nicely off the 1.3836 level. We could well see a hawkish tone from Carney tomorrow, but with too many stormy Brexit clouds the upside could be muted.
News of a potential further breakthrough between the Social Democrats and Merkel’s CDU party has had little affect so far this morning on the euro, with the US dollar strength still in the dominating position. European equity markets have made a solid start to trading, but with a quiet calendar ahead you get the feeling that would could be rather subdued before Wall Street kicks in and we see just which way equity markets decide to move.