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It looks like the US and its various allies are becoming involved in a long-term fire-fighting exercise in the Middle East, with indications that the operations to contain IS militants will be measured in years rather than months. Clearly that leaves the prospect of escalation on the agenda, while the delicate ceasefire in Ukraine appears to be under pressure as the eastern regions look to hold independence referendums.
In Europe, German IFO data was weaker once again, and while some of this is down to the Ukraine situation, the ongoing leaking of the periphery’s problems into the eurozone’s core nations is not going to help matters. Mario Draghi’s declaration this morning that policy will remain loose has done little to reassure investors, with the decidedly mixed trading picture indicating that markets would much prefer action over fine words.
The US session has little in the way of major catalysts to motivate traders, but the EIA crude inventories data will be closely watched as oil prices continue their steady decline. US futures have stabilised after two days of heavy declines but markets are uncomfortably aware that this week is light on really meaty economic data, which may condemn markets to further rangebound trading until non-farms arrive, followed by the start of the next earnings season.
Ahead of the US open, we expect the Dow Jones to start five points higher at 17,060.