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After two days of strong selling, equity markets are getting a break as concerns on bank’s creditworthiness somewhat eased.
Today and tomorrow the focus is shifting onto Yellen’s testimony. She will be able to give an assessment of the current situation, and there is no doubt she will try the calm the markets down. But there is very little the Fed can actually do, except for delaying rate hikes. This should have limited impact on the markets as traders have already lowered the odds of a rate increases this year to a mere 30%.
European banks still need to de-lever in order to meet higher capital requirements, and weak earnings being confronted to negative rates are not helping. On the other hand, the access to liquidity through the ECB is a lot easier today. Yet the simple fear that a banking crisis could resurface, whether irrational, is adding up to global growth worries and low oil prices, which could easily lead to further de-risking.
Equities probably have more to go and any bounce is probably short lived. Looking at the DAX, the 9300 support becomes resistance and could be re-tested before going lower toward the October 2014 lows between 8500 – 8300.
DAX: SELL @ 9300, STOP 9500, Target 8500