US Markets Rebound - Europe Points to Strong Open

European markets are pointing to a strong open after yet another round of record highs in the US. US equity indices traded sharply higher after China denied any plans to halt US debt purchases and as oil soared to a 3-year high. Energy stocks were also in demand in Asia and could give the FTSE a good leg up in early trading as the markets open.

European markets are pointing to a strong open after yet another round of record highs in the US. US equity indices traded sharply higher after China denied any plans to halt US debt purchases and as oil soared to a 3-year high. 

Energy stocks were also in demand in Asia and could give the FTSE a good leg up in early trading as the markets open. FTSE futures are pointing to a positive start and given the heavyweight nature of oil stocks on the UK index, investors will be watching for the potential of a new record high. 

Brent hits 3 year high 

Brent crude touched $70 per barrel in the previous session, its highest level since 2014 as data continues show stockpiles declining. Whilst Brent continues to hover at the multiyear high, WTI has just eased back from its multi-year high of $64. 

Oil trader’s attention will now shift towards US Baker Hughes Rig count for news as to whether the higher prices are encouraging more US producers back into production and potentially posing a threat to these levels. 

Miners to continue to rally? 

Miner could also be set up for another strong session on Friday after the Chinese trade surplus came in higher than forecast. Stronger data from China, the world’s largest metal consumer, often supports metal prices. The weaker dollar can also be a factor, boosting demand for metal by making the price of metal cheaper for foreign buyers. 

US earning season starts 

Looking ahead the US session will more than make up for a quieter European corporate and economic calendar. 

US earning season will begin this afternoon, with 4th quarter results from JP Morgan Chase, Wells Fargo and BlackRock and expectations are riding very high. With US equity indices trading a fresh all-time highs, investors are going to want to see the these current levels are supported. The biggest risk facing the market right now is probably disappointing earnings or forward guidance. 

There is a chance that the tax reform, could result is heavily one-off charges from deferred taxes, which could muddy the water. However, overall the tone is expected to be positive – so far the majority of firms have been upbeat as to the expected impact of the tax reform. Should forward guidance be encouraging the US rally could take a step higher. 

US inflation to pull dollar lower? 

Finally, the US economic calendar will see investors focus on inflation. PPI figures yesterday, suggested that the US inflation issue is going nowhere fast and wholesale inflation actually fell. Core inflation is expected to be 1.7%. 

Should we see this come in weaker then the dollar could come under pressure as investor reconsider the probability of the Fed being able to raise rates three times this year when inflation is still a long way from the Fed’s 2% target.

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