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European open – Europe higher in fragile markets

By Craig Erlam, Senior Currency Analyst at OANDA

Markets pare losses but sentiment remains weak

Another troubling start to the week in financial markets is further denting investor sentiment as we approach the open on Wednesday, with futures currently stable but vulnerable to another tumble.

US tech stocks are once again leading the way, plunging on the back of a combination of individual concerns – Apple iPhone sales for example – and general weaker risk appetite. The FAANG stocks extraordinary performance in the first half of the year has put them front and centre once the market turned and some now find themselves in negative territory for 2018, with others not far behind.

While many would argue a correction has been on the cards for some time due to the growing list of risks to the outlook, be that rising US interest rates, Trump’s aggressive trade agenda, Brexit, Italy or one of a number of other headwinds, how bad it will get is difficult to say. We’re already near the October lows and in correction territory, even close to bear market in some cases such as the DAX, if this is just a corrective move, I would expect investors to start eyeing up some bargains soon.

Oil plunge continues ahead of OPEC+ meeting

Oil prices are creeping higher again on Wednesday after enduring another sharp sell-off the day before, as Brent and WTI smashed through technical support around $65 and $55, respectively. Traders are simply not buying into the rumours of a production cut from OPEC+ countries in a couple of weeks, be that the significance of a 1-1.4 million barrel a day cut or the prospect of one at all.

Oil is just continuing to tank and has now fallen around 30% from its peak last month, with global economic growth, demand growth and oversupply – linked to record output from the largest producers and Iranian waivers – all contributing to its fall from grace. We’re certainly not talking about $100 a barrel any more as some were at the start of October. The API report on Tuesday provided some support for prices and similarly, the EIA could today if similar inventory numbers are reported but sentiment is very weak.

May heads to Brussels buoyed by (seemingly) failed leadership challenge

The more domestic issues look to be temporarily on hold, as various MPs voice their disgust at Theresa May’s Brexit deal while at the same time not adding their letters to the pile calling for a leadership challenge. It would appear this movement doesn’t quite have the momentum that certain factions of the party would have us believe and if they’re struggling to collect the necessary 48 letters to trigger a vote, what chance do they have of securing the other 111 necessary to unseat her? Of course, even slightly fewer could still make her position untenable.

Still, the silence will be music to the ears of May who heads to Brussels today to meet with Jean-Claude Juncker and discuss the future relationship beyond the transition. Various member states have expressed concerns in recent days about the deal which the two may look to iron out during the talks as we edge closer to the 27 remaining countries signing off on the agreement.

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