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

UK 100 Index called to open +70pts at 7160 having sharply recovered from late Friday lows, although turning back to support at 7155 after failing to overcome intersecting resistance at 7180. Bulls will be hoping a further test leads to a break out from 7180 resistance, opening the door to last week’s highs of 7310. Bears, however, will hope the retreat from 7180 leads to a test and breakdown from 7100 support. Watch levels: Bullish 7185, Bearish 7145

Calls for a sharply higher start to the week mirrors reciprocal performances from the US on Friday and in Asia overnight as bond markets return to relative calm. A return to risk assets following last week’s volatility-induced correction has helped regional indices climb, most notably Financials and Tech helping Hong Kong’s Hang Seng to outperform as Japan enjoys a market holiday, in turn providing a positive handover for European equities.

The US dollar retreating from its highs has bolstered commodities with a likely knock on for Miners, while Crude Oil has climbed sharply from Friday evening’s lows. Note a distinct lack of macroeconomic data today, which will place the onus for today’s stock market performance firmly on investor confidence following last week’s widely risk-off mood ahead of a key US inflation print on Wednesday.

Corporate news this morning: Barclays Bank unit has been charged by the SFO relating to its 2008 capital raising. IQE appoints new auditor. Acacia Mining posts $700m loss on Tanzania export ban hit. London City airport has been closed after discovery of WWII bomb nearby. Heineken operating profit rose 6.2% to €3.76bn (£3.33bn) last year, in line with expectations. 

US equity markets closed higher on Friday during another wide-ranging session, paring some of the week’s losses although failing to fully recover from lows, enduring their worst week in two years. The Dow Jones climbed 300 points (1.4%) thanks to gains for Healthcare and Financials, while the S&P 500 climbed 1.5% thanks to Tech sector strength, a trend that also saw the Tech-heavy Nasdaq climb 1.4%.

Gold has climbed overnight as the US dollar retreats from its highs in what may be a double top pattern. The precious metal is testing support turned resistance at $1324, however is failing to overcome the key level as the dollar holds at support. The greenback, and the performance of equity markets, will remain the drivers of the safe-haven asset which has so far failed to significantly capitalise on the equity market correction.

Crude Oil prices have rebounded from their lows as the US dollar retreats from its highs. Having touched fresh lows on Friday evening after another climb in the US Baker Hughes Rig Count, US dollar weakness has helped to lift both Brent and US crude from lows. Global benchmark Brent is back above $63.3 a barrel ahead of today’s OPEC Monthly Oil report, while US crude closes in on a $60 handle from Friday’s lows of $58.1.

In focus today will be the European reaction to Friday’s Wall Street recovery. After a choppy week of trading, the three major US indices climbed by over 1%, however this was not enough to save US indices from their biggest 1-week fall in two years.

On an extremely quiet day for macro data, the only releases of note are Swiss Inflation prints (8:15am) and US Consumer Inflation Expectations (4pm). The latter will be especially poignant given a key driver of last week’s market volatility was a presumed uptick in US inflation needing to be countered by tighter monetary policy from the US Fed.

Also of note amid the continued weakness in crude oil markets will be the OPEC Monthly Oil Report. Having rallied above $70 for the first time since 2014 earlier in the year, Brent Crude has since come under pressure as US production reaches its highest level in over four decades. Whether OPEC sees continued compliance and demand trends in place will be key in avoiding further weakness.

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