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Europe bounces back as panic fades

Stocks markets are calmer this morning as bargain hunters swoop in. 

The positive finish in the US last night has given traders in Europe the greenlight to go long this morning. In the wake of every serious sell-off there are a few moments of relief, and those with a higher risk appetite are snapping up stocks. The enormous swings on the American markets yesterday suggest normal business has not been restored, and some investors view today’s upward move as the calm before the next storm.

Rio Tinto revealed a 69% jump in underlying net profits to $8.62 billion, which was marginally ahead of the forecast of $8.5 billion. The company’s total dividend for this year was $2.90 – an all-time high. Not only did the firm return record pay-outs in the form of dividends, but it also boosted share buybacks. Net debt fell dropped by 60%, which gives the company extra breathing space. The stock is slightly lower on the day, but has been in an upward trend for the past two years, and if the wider positive trend continues it could target 4200p.

Tullow Oil issued a positive trading statement and the company has acquired exploration licences in South American and Africa. The strong oil market has helped cash flow at the company and it now hopes to ramp up capital expenditure to take advantage of the more robust energy market. The indebted oil company has reduced net debt by 27%, and this will take the pressure off in terms of interest payments. The share price is up 1.7% today.

The US dollar is firmer today and in turn EUR/USD and GBP/USD are weaker this morning. The greenback continues to be the main driver on the currency markets as the perception the Fed are going to be more hawkish than anticipated this year. UK house prices slipped by 0.6% in January accord to Halifax, and this caught the market by surprise as traders were expecting a rise of 0.2%.

Federal Reserve members William Dudley and John Williams are due to speak at 1.30pm (UK time) and 10.20pm (UK time), respectively. There is growing concerns the US central bank will hike interests four times this year, and the updates from the central bankers could provide a clue as to what course of action the Fed could take this year.

We are expecting the Dow Jones to open down 272 points at 24,640 and we are calling the S&P 500 down 23 points at 2672.

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