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

UK 100 Index called to open +60pts at 7200, holding above 7160 since yesterday evening, but well off overnight highs of 7300 after the rebound was checked by falling highs resistance going back to last Thursday. Bulls need a break above 7230 for further upside; bears need a breach of overnight lows 7155 for more downside. Watch levels: Bullish 7230, Bearish 7160

Calls for a positive start derive from a strong Wall St rebound, bringing the Dow, S&P and Nasdaq back into positive territory for 2018, which was followed by positive sessions in Asia overnight. That said, the region’s indices are well off their best levels, which is the same for European equity futures as we write.

Be prepared for more industry and media discussion about the past three lively trading sessions, and whether this is a mere technical and long overdue correction, or the opening scene for a greater unwind; an unwind from a protracted period of historically low volatility, yields, borrowing costs and investor concern versus high levels of market valuation, passive investing, financial engineering and market complacency. As the last few days have demonstrated once again, things are always “different this time”. Until of course they’re not.

Corporate news this morning: Tesco may be facing a £4bn class action lawsuit from 200K mostly female employees regarding equal pay. Rio Tinto underlying profits ahead of consensus, lower debt, declares biggest dividend in its history, $1bn top up to share buyback. Imperial Brands says on track for FY expectations, but note Japan Tobacco shares -3% overnight after a weak outlook.

 UK Housebuilders will likely welcome another set of record results from Redrow, which enters H2 with a record order book, while DCC announces its first US healthcare acquisition. Smurfit Kappa still experiencing FX volatility, wage inflation and higher energy/input costs, but good demand from Europe, input cost recovery and improvement in Americas. Tullow Oil posts first annual profit in three years. 

US equity markets closed higher yesterday, paring losses late in the session to turn back positive year-to-date having opened sharply lower. With a trading range of over 1150pts, the Dow Jones closed 567pts higher, led by gains for its largest weighted stocks (Boeing, Goldman Sachs, Home Depot), while the S&P 500 and Nasdaq closed 1.7% and 2.1% higher, respectively, as both indices were led by Tech rebounds following Monday’s risk-off move.

Gold is bouncing from the $1320 floor of its falling channel, benefitting from early US dollar weakness to halt yesterday’s sell-off from $1345. The precious metal will continue to be in focus as a safe-haven amid equity and bond volatility, while the performance of the global reserve currency will also be closely watched.

Crude Oil benchmarks have moved higher from overnight lows as the API reports a surprise drawdown in US inventories, further helped by early US dollar weakness but capped by a continued cautiousness in risk assets. Brent Crude is testing falling highs resistance from yesterday’s $68 highs, while US Crude trades within a $63.8-$64 range having retreated from $64.2 overnight highs.

In focus today will be further digestion of the past three rather lively trading sessions, and analysis as to whether this is a mere technical correction or the start of a greater unwind.

Only two pieces of macro data to note today, with UK Halifax House Prices (8am) seen returning to growth in January from December’s 4-month low, although retreating on a yearly basis, while US EIA Crude Oil Inventories (3:30pm) will look to repeat last night’s surprise API inventory drawdown with consensus for a build.

Speakers today include the ECB’s Lautenschlager and Nouy (10am) both appearing at the Annual Press Conference of ECB Banking Supervision this morning, while the NY Fed’s Dudley (1:30pm) is a panelist on a debate entitled ‘Banking Culture: Still Room for Improvement?’, Chicago’s Evans (non-voter; 4:15pm) discusses current economic conditions and monetary policy with a Q&A session, and San Francisco’s Williams (voter; 10:20pm) takes part in a Q&A session after the US close.

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