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It was a shaky start for European investors this morning, as cautious buying took the place of last week’s rampant selling. Weekend data from China was not particularly encouraging, while gyrations in the Chinese FX market continues, but as with any story eventually the power to shock wears off. We are seeing this with China this morning, and while there will still be plenty of concerns, the impending arrival of US earnings season provides a new story to focus on. For the FTSE, the market continues to find support around the lows seen in August, September and December of last year, and so while this holds buyers will remain optimistic the downward move of early January has run its course.
One story from last week that remains in play is Home Retail, which is bouncing this morning on the almost inevitable expectation that another bid from Sainsbury’s, and possibly from other interested parties, is on the way. Having ended 2015 so poorly, the shares are definitely having a better time of 2016 so far, even if it is mainly speculative flows and not long-term investment moves, given the outlook for the underlying business remains so uncertain.
US earnings season begins in its traditional form, as Alcoa updates the market, but investors will have to wait until the end of the week for further big news, when JPMorgan and Citigroup open the batting on US banks. Concerns about declining earnings are front and centre, so any upside surprises, however modest, could see markets take the positive news and run higher. After last week, most investors can be forgiven for wanting to focus on things other than China. Ahead of the open, we expect the Dow to start at 16,396, up 50 points from Friday’s close.