US markets experienced a heavy sell-off last night, and the picture is not looking any more optimistic this morning either. Concerns about the season’s earnings are very much on investors’ minds. What really worries them is that we might see another disappointing quarter and they are wondering just how bad it can get. Major banks will be announcing their quarterly earnings results this week and if they fall short of expectations, it will not only impact the investors’ appetite for risk, but they will also start raising questions about whether or not the Fed should increase interest rates.
Although we have heard a number of the Fed members say that they would like to see another rate hike this year, traders are not as certain it can take place. This has eased the dollar’s rally and it is the chief reason why we are not experiencing the kind of rally which we should be seeing.
The Japanese yen’s strength is what traders cannot ignore and the moment we see that there is a weakness in the currency, export-based stocks over in Japan will start roaring as they reach for the sky. The Japanese yen has lost significant ground against the dollar and investors are awaiting desperately in the hope that the Bank of Japan will intervene to weaken the currency. The stronger currency is not going to help them, especially when they have a negative interest rate.
Back in Europe, EU regulators will be dissecting the new plans from Italy to form a new fund similar to that of a bad and good bank so that they can bring more stability to their financial system. This comes as critics envisage that it is only matter of time before Italy faces a situation which is very similar to that of Greece. Officials from Italy have a desire to create a bailout fund through which they can buy bad bank loans without having to rely on Brussels regulations every time they want to plan something.
In terms of economic data, we have the UK CPI y/y data due at 08:30 GMT. The forecast is for 0.3% which matches the previous reading.
As for the oil market, traders are waiting for the upcoming OPEC meeting nervously as they are not sure what will happen during this meeting. Expectations are not too high, especially after a report from Goldman Sachs (NYSE:GS) has suggested that a production freeze may not even take place. What this has done is tweaked the market expectations even lower and now any kind of good news during this meeting could provide support for the oil market which could see the oil price moving higher. However, if the OPEC members do fail to show a united front once again, it may push the oil price even lower.
by Naeem Aslam