Sunlight streams across Europe

After the chaos of yesterday, the FTSE serenely climbs 1.6% higher.

- European equities claw back some of yesterday’s losses
- Rolls-Royce cuts dividend but maintains 2016 outlook
- Better-than-expected Commerzbank figures ease banking sector worries

The combination of several catalysts triggered yesterday’s aggressive sell-off, resulting in $1.2 trillion being wiped off global equity markets over the week. The headwinds that markets focused on yesterday have not disappeared, but as is the will of the markets, they do like to overdo things. The dawn of a new day has seen a little more analysis rather than just blind panic. Much like the indices, equities have seen a few ‘less bad’ data releases that have helped prop up trader optimism. Having had five profit warnings in the last two years, the writing was on the wall for Rolls-Royce that it would make it a round six and that the dividend would be cancelled. As it transpires, it has maintained its 2016 outlook and only reduced the dividend by 50%. Although not good news, it’s not half as bad as markets had feared but still the first reduction in its dividend in 24 years. With Middle East sovereign funds bailing out of their European financial sector exposure, shares in European banks have collapsed while at the same time revenues and cost have all come under pressure. Considering how Deutsche Bank had faired earlier in the week, this morning’s impressive Commerzbank results have caught traders by surprise, sending the shares up by almost 14% in the first couple of hours of trading.

Gold bugs might well have been pinching themselves yesterday to ensure it wasn’t all a dream, but today’s price action is arguably even more important. To foster the belief that a corner might finally have been turned, the precious metal needs to ensure it doesn’t go into reverse today. Part of the reason for yesterday’s moves was the Fed chair Janet Yellen’s comments on negative interest rates, as only recently this was completely unthinkable but now worthy of discussion. After crashing through $30 a barrel yesterday, WTI is bouncing this morning as UAE-inspired rumours of an OPEC change of stance have given oil traders a reason to drive prices higher. Of course, when it comes to OPEC there is normally a lengthy gap between discussions and agreements especially as Saudi Arabia is not the one driving this change in thinking.

Ahead of the open, we expect the Dow Jones to start 120 points higher, at 15,780.