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Subdued start to February

‘It’s not the speed that kills, it is the sudden stop’; since some $12 billion dollars of foreign money fled the stock markets of emerging economies last month, the lurking possibility of contagion is adversely affecting sentiment to risk assets.

The potential effects of lower global growth rates were somewhat ratified by China’s factory growth drop to a six-month low, which, coupled with weakness in the financial sector, contributed to a fairly subdued start to February. 

Weak earnings results in the banking sector were well flagged, with several of Europe’s large banks issuing profit-warnings lately, yet the constant spectre of mis-selling scandals and the massive provisions 

required to offset have put investors off. Lloyds saw shares fall by over 2% in early trade as markets ignored better-than-expected profits, focusing instead on the £1.9 billion settlement provision which clearly delays any forthcoming dividend income.

Ryanair's largest third-quarter loss in five years was attributed to a ‘9% drop in average fare prices and a weaker sterling’ by CEO Michael O'Leary. This is somewhat odd given that the pound reached a 52-week high against the euro in January, and has gained an average of 4% against both the single currency and the dollar in the past three months. Nevertheless, investors appear to be giving the airline the  benefit of the doubt on its buoyant outlook, with shares gaining 4% on the open before fading back slightly. 

Eurozone PMI offered up a mixed bag, with Spain and France superseding expectations – the latter rising to a 23-month high yet remaining mired in contraction. The new orders component of the index was impressive, rising to a 51.0 from 49.9 which is its first expansion for two years. The euro popped higher on the news, but traders are reluctant to give much bullish bias to the currency due to inflation concerns and the potential for a rate cut from the European Central Bank later this week. 

The US manufacturing PMI is expected to see a mild decline on last month; a print of 56.2 is expected here. 

We are currently seeing a potentially lower open for the Dow Jones, as futures suggest that US markets will open down 18 points at 15,680.

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