Europen dead cat bounce

With a ‘morning after the night before’ feeling, the FTSE is trying to hold on to some decorum and has at least started in the green, but will no doubt be nowhere near this level once this has gone to print.

City of London
Source: Bloomberg

After an hour's trade we are a scrap higher around 6220. With the ‘10% from the high’ level around 6210, this has been a key point of resistance in both today’s and yesterday’s sessions. We have been lower out of hours after the US markets bottomed out following the European close; with the S&P around 3% lower taking European futures with them.

Not since perhaps the summer of 2011 has a spike in volatility rattled investors so much, and the reach of asset classes affected is leaving little stone unturned. The moves in major government bond markets yesterday were nothing short of spectacular, with a flight to safety prevalent. US 10-year yields, currently around 2.05%, managed to go from 2.20% to almost 1.85% and back to 2.15%. There will have been some very weary traders in Chicago last night. 

Shire (-8%) has added to yesterday’s fall as AbbVie confirmed its worries over the deal, highlighting changes to US tax rules as the major stumbling point. The issue of tax inversions has been a prominent political sticking point in the US recently, and this is certainly the highest profile deal to be affected.

Netflix gave us the first major drama of this quarter’s earnings season, plummeting 25% after the close last night as it missed growth forecasts, highlighting price increases as being partly responsible.

Bad results are clearly going to be punished in this market, and high valuation growth names are likely to see any selling over-amplified as investors seek stability.

With a small portion of European trade out of the way, US markets are pointing lower. With the S&P opening call around 1855 (-7) and the Dow Jones around 16,100 (-40). Pre-market we have numbers from Delta Airlines, Dow components UnitedHealth and Goldman Sachs, with AMD and Google after the close.

With European inflation data this morning and some Federal Reserve speakers this afternoon, we have another busy day in store.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.