Barring a dramatic recovery today, stock markets are set to post a heavy week of losses with the selling broad based, and perhaps more worryingly, not the result of an immediately apparent catalyst. This is of greater concern because it suggests that a snap back recovery is unlikely and that the declines are something more than a spate of panic selling in a knee jerk reaction - which is what we saw in the sell-off back in February.
European benchmarks test key technical levels
There are some green shoots of recovery seen around European markets this morning, but these gains are still in the very early stages as investors appear to be tentatively stepping back in to buy. This rebound remains fragile in nature and the underlying causes of the selling remain in place; namely rising US rates and little sign of a let up in the trade tensions between the US and China. On the latter front, there was a small glimmer of hope yesterday with reports that the White House has decided to move ahead with plans for President Trump to meet Chinese leader Xi Jinping at the G20 summit next month. Having said that, much more needs to be seen on this front before the markets can hope for a ceasefire, although the recent declines and Trump's pride in often quoting stock market performance as a barometer of success for his economic policy do suggest that the President may be more willing than before to reach an agreement.
Major US banks to report latest trading updates
US earnings season kicks off today with 3 major banks setting the ball rolling as JP Morgan, Citigroup and Well Fargo are all scheduled to report before the opening bell. Expectations are high and a solid set of results are much needed given the lofty valuations and recent market turbulence. Another factor which could come back into play for US stocks in the coming weeks is stock buybacks, as they are currently blocked with firms in a blackout window prior to posting the latest results. This has removed one source of buying of late and while it is not a major contributory factor in the recent declines it may have played a small part.
US Pastor Brunson faces Turkish court
Today could be a significant one for the Turkish Lira with US Pastor Andrew Brunson set to appear in court. The imprisonment of Brunson back in the summer was the straw that broke the camel's back as far as the Lira was concerned, causing the market to plunge 20% in a day to an all-time low on fears of a full blown diplomatic meltdown between Washington and Ankara. While President Erdogan has remained coy on the subject, it appears that he may be willing to allow Brunson to be freed as long as it can happen in a way that doesn't look like him backing down. Should Brunson be released then it would represent a step forward on the diplomatic front and the Lira is hovering around 2-month highs against the US dollar as the verdict is keenly awaited.
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