Markets Overview: (Source: Bloomberg, FT, Reuters, DJ Newswires)

UK 100 Index called to open -215pts at 7120, down sharply from last night’s 7335 close but well off overnight lows of 6920 which, incidentally, correspond with rising lows from Feb and Jun 2016. Bulls hope the 220pt overnight bounce can challenge last night’s breakdown. Bears need overnight highs of 7155 to remain a hurdle. Watch levels: Bullish 7150, Bearish 7075

Calls for a negative start derive from Wall St's biggest fall in history overnight, extending yesterday’s second day of weakness, and Asia reacting to the downside overnight. This has taken major indices over 10% from their highs to overnight lows, equating to a correction, not yet a bear market (-20%).

Whilst the roots and drivers are sure to be discussed for days, it looks to emanate from a perfect storm of reasons including, but not restricted to, a strong 2017 rally extending into January, low volatility, low interest rates, over-optimism and complacency, over-leverage and financial engineering, all coming to a head as investors react to the possibility of higher/faster interest rates rises with bond yields creeping higher to jeopardise the current market situation.

Note the US Dollar off its worst levels, helping offset recent GBP and EUR strength which has helped their respective national flagship equity indices (UK Index , DAX) up off their overnight lows. That said, with Energy and Financials under so much pressure overnight, both sectors and the indices may be impacted heavily given their importance. Base metals and their Miners may also smart at the USD strength rather than GBP weakness.

Corporate news this morning: BP Q4 underlying profits on a replacement cost basis beat expectations, maintains dividend. Hargreaves Lansdown H1 pretax profits rise, AUM+9%, ups dividend, appoints new chair. EasyJet Jan passengers +8.7% year-on-year, load factor +220bps. Ocado revenues +12.7%, but EBITDA +4.5%, debt rises. Babcock highlights continuing tough trading conditions in Offshore OiIl & Gas, slowdown in defence.

US equity markets plunged yesterday, the Dow Jones down almost 1600pts and triggering circuit breakers, before closing 4.6% in the red, erasing all of 2018’s year to date gains. Energy underperformed while the Financials and Tech sectors were also under pressure in classic risk off trading, especially from those sectors which have benefited from recent optimsim.

Gold has taken another leg higher, although less than might be expected given the equity market rout as the USD climbed amid a preference for the world’s reserve currency. Having broken above $1342, and successfully testing it for support overnight, could this be a bullish flag for the yellow metals, worth another $10, back to Feb highs?

Crude Oil benchmarks have calmed overnight after a yesterday’s decline, with US Crude at $63.6 and Brent at $67.4 as a result of aforementioned USD strength. The question now is whether this is consolidation before another leg down, or bottoming out and preparing for a bounce.

In focus today will be continued lively debate about the roots and drivers of what is now a two-day (might it become three?) global stock market correction which has shaken investors further from a slumber of complacency. As it stands, UK UK 100 futures fell 11.3% from their January 2018 high to their overnight low; DAX30 -14%, CAC40 -12.2%, DJIA -13.3%, S&P500 -11.9%.

In terms of data today, we have a distinct lack of tier one updates meaning investors will have to make do with the likes of German PMI Construction (8.30am) followed by UK New Car Registrations (9am) and Eurozone Retail PMI (9.10am) this morning, and then the US Trade Balance (1.30pm) and JOLTS Job Openings (3pm) this afternoon, both forecast largely flat.

Speakers include the ECB’s Weidmann (9am) will deliver welcoming remarks at a SAFE/CFS/Deutsche Bundesbank lecture given by General Manager Carstens of the Bank for International Settlements (BIS). The Fed’s Bullard (1.50pm) presents on US Economy and Monetary Policy at the Gatton College of Business and Economics Outlook Conference with audience Q&A. The ECB’s Costa (6pm) is also scheduled to talk this evening.

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