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A return to the template of an overnight Chinese selloff has dented European optimism, causing markets to tumble. The aggressive nature of this morning’s selloff highlights how fragile confidence in 2016 has been.
Once again, the financial world’s focus will be on the Alps as Davos hosts its annual World Economic Forum. Traders will be conscious that the potential for market-moving commentary is always there, due to the volume of central bankers and corporate leaders willing to talk to the press.
Oil remains below $29 a barrel and looks more inclined to test the limits of how low it can go, rather than find any traction regardless of the consequences. Oil’s price action, in conjunction with the doomsday scenario that BHP Billiton has painted in its trading update, has given the mining sector and energy stocks all the excuse they need to slump once again.
The currency markets are still coming to terms with the wording of Mark Carney’s speech yesterday, and the instantaneous fall in sterling. Although GBP/USD might be off its lows, calling the price action a bounce might be stretching things just a little bit, with today's wage data the sore point in an otherwise healthy employment update from the UK.
This afternoon will see the continuation of the US reporting season, with Goldman Sachs the latest big name blue chip to post its fourth-quarter figures. The corporate posts however look likely to take a back seat in traders’ thinking as the latest US inflation figures and crude oil inventories have every chance of piling on the pain.
Ahead of the open, we expect the Dow Jones to start 319 points lower, at 15,697.