Buyers return to European markets

Early trading in London has seen the FTSE 100 add 70 points, with markets in Europe racing higher too.

- European markets rally after days of negativity. - Bank shares surge as debt worries ease - Markets look towards Yellen testimony

Despite another poor session overnight, markets in the UK and Europe have rallied impressively. Banks are surging higher, with Deutsche shrugging off the woes of yesterday as investors take the opportunity to buy on weakness once again. A better performance from the oil price and heavily oversold conditions in a number of markets, plus expectations regarding Janet Yellen's appearance later in the day have provided bulls with the chance to reverse some of the heavy losses seen so far in February. After due diligence Hikma Pharmaceutical has knocked $535 million off its proposed acquisition of the US drug company, Boeheinger. Worries that other issues might arise after the deal has seen the markets drive Hikma’s shares down by almost 20% before bouncing back to a fall of 11.5%. ARM Holdings has posted an increase in fourth-quarter revenues of 14% – but traders have focused on the slowdown in sales of smartphones, seeing the shares drift by 4.2%.

Oil continues to keep its head just above the $30 a barrel level, but without an OPEC resolution and no real change in the supply and demand balance, it only looks a matter of time before gravity kicks in againSince the turn of the year expectations of US interest rate changes have gone from four increases to the current 70% probability of no changes in 2016. Both future and FX traders firmly believe the Fed chair Janet Yellen is now ‘one and done’. Today’s speech is unlikely to see any call for change, however option trading has hinted at an increased suspicion that a cut and a reversal of current thinking is not completely off the cards and markets will be watching for any sign of weakness. Ahead of the open, we expect the Dow Jones to start 83 points higher, at 16,097.