Investors once again getting nervous at record highs

Good morning,

• Investors once again getting nervous at record highs;

• Rising yields blamed for weakness in equities this week;

• Carney to testify in front of the Treasury Committee.

European futures are expected to open around a quarter of a percentage point lower on Wednesday following a similarly disappointing trading session in the US and Asia overnight.

Once again we're seeing an unwillingness to continue to buy into the rally near the record high levels that US indices currently find themselves around yet at the same time, every time we see a dip in the market, investors are flooding to buy. Maybe that suggests that investors believe the markets are fairly priced at these levels. Many people have said recently that while it may not be a great time to buy at the moment, it's also not a time to sell, which would explain the ongoing buying of the dips to exploit short term weakness in the market.

A lot of the declines overnight are being attributed to the rising bond yields, particularly in the US but also abroad. Rising yields may reflect a slight repricing of the first rate hike with some believing that markets had priced in a later hike than the Fed is suggesting. While that may be true, this should only cause short term weakness in the markets as we haven't seen anything that would suggest the Fed itself has brought forward its rate hike expectations.

Some of the weakness in the markets right now could also be attributed to the lack of economic data being released this week. At a time when news flow is also slow, it's difficult for investors to find any real drivers for markets and instead all we get is choppiness and maybe a little profit taking. We're not even getting any direction from the Federal Reserve as we're currently in the blackout period when policy makers aren't allowed to speak in public.

While today is looking pretty quiet again in terms of economic data, there is one very notable economic event taking place, the Bank of England inflation report hearing. BoE Governor Mark Carney and other members of the MPC are due to testify before the Treasury Committee on inflation and the economic outlook.

Given that this is a major central bank and the Treasury Committee has never been one to go easy on the them, this does have the potential to create some big moves in the markets, particularly at a time when the first rate hike is just around the corner. The only problem we have is that the BoE has been very open about its views on monetary policy and the economy in recent months, with Carney only this week stating that the first rate hike is likely to come during spring next year. Given that clarity, along with the fact that he's confirmed that any hikes thereafter will be gradual, what else could we learn today? Is this going to be another boring few hours of politicians trying to get the central bank Governor to back their policies. Unfortunately, I think this is exactly what's going to happen. That said, you can never be complacent during these events and significant volatility should always be expected.

The FTSE is currently seen opening 12 points lower, the CAC 12 points lower and the DAX 30 points lower.