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The deteriorating situation in Iraq, coupled with reports Iran may be looking to intervene, has given European traders the cue to sell equity markets this morning, ignoring a reasonably strong finish to the Asian session. If the Ukraine crisis caused jitters, the Iraq developments threaten to turn into something more serious.
The FTSE has headed back towards 6800, but support around 6790 should stem the selling for today at least if no further bad news emerges. Mark Carney has stolen the headlines from chancellor George Osborne with his hints that a UK rate rise would come earlier than expected.
This merely confirms what FX markets had been thinking over the past year, but speculation has now been ramped up to an entirely new level. Cable is at its highest level in over a month, having gained 200 points in the space of three days. The flipside of this news is being seen in housebuilders, which have seen their share prices knocked down rapidly this morning. Perhaps we’re seeing a Mario Draghi move in reverse? The European Central Bank likes to talk down a currency, while the Bank of England appears to be set on talking it up.
The second consecutive selloff in US markets underscores how cautious most investors are at present. This certainly isn’t the time for an all-out move into equities, but already some cautious buying in selected names is being seen as some begin to bet that this is the latest dip that will offer a sensible entry point. Corrections do not come when everyone is looking for them – they appear at unexpected moments. Ahead of the open, we expect the Dow Jones to open 25 points higher at 16,759.