Markets Push Higher Lead by Deutsche Bank as the CoCo Saga Dies Down

Markets have cheered up as the approach this week's premier econ-news moment.

Markets appear to be pausing for breath after yesterday’s bloodbath.

"Despite another poor session overnight, markets in the UK and Europe have rallied impressively. Banks are surging higher, with Deutsche shrugging off the woes of yesterday as investors take the opportunity to buy on weakness once again," says Alastair McCaig at IG.

McCaig also credits a better performance from the oil price and heavily oversold conditions in a number of markets, plus expectations regarding Janet Yellen's appearance later in the day have provided bulls with the chance to reverse some of the heavy losses seen so far in February.

It still seems to be the case that a hawkish tone from the Fed President would provide the ‘surprise’ factor, and would lead to a recovery in the dollar.

What’s less clear is how other markets will react, given the different ways in which a resurrection of Fed hike hopes would be interpreted for each currency.

For EUR/USD it would no doubt be extremely bearish given the rising possibility the ECB will have to get down and dirty again in March; with GBP/USD its harder to say, but given the pound is currently debilitated with an outbreak of Brexit it seems the USD could well rise rapidly against the pound too – nor will this morning’s lower-than-forecast UK Industrial Production data help.

Versus the commodity block, things could get complicated, as oil is subject to a flurry of reports, probably the most important of which, from an investor standpoint, being the OPEC one, given recent rumours that the Saudis and Iranian’s would be willing to discuss production, whilst putting aside religious differences.

The other report for black gold is U.S Inventories, which could also weigh, as the EIA figures did yesterday.

Deutsche Staunches Haemorrhaging

Asian shares continued their vexatious slide lower overnight as concerns about European banking led a host of other worries.

However, the news that Deutsche Bank is now saying it will aatempt to buy back 50bn of Senior bonds in a bid to shore up its tumbling asset prices, has settled markets down a bit.

The yen weakened further as data showed an unexpected fall in Industrial Production, and USD/JPY continues to win the bearish-chart-of-the-year award.

"The main focus of the morning, as for much of the week, has been Deutsche Bank. After falling to effective all-time lows during Tuesday’s torrid trading the German national bank has seen an incredible recovery this Wednesday, surging over 12% to tickle the €15 mark," says Connor Campbell at Spreadex.

Campbell says it appears that those reports of Deutsche Bank potentially buying back debt has done far more to reassure investors than the comments from co-CEO John Ryan and German finance minister Wolfgang Schauble yesterday, and has inspired an impressive surge across the banking sector as a whole.

'Trump and Sanders' go together like..

Other main news includes the results of the second caucus in New Hampshire, which saw Donald Trump win for the republicans and Bernie Sanders for the democrats.

This doesn’t help those trying to forecast who will end up in the White House, however, as the other two main contenders: Ted Cruz and Hillary Clinton came out on top in the other bell-weather state of Iowa, and statistically the eventual president almost always wins in one of these two states. As it is four different candidates have won, which still leaves the race wide open.

From an FX perspective it seems the Cruz and Clinton may have a benign effect on stocks but a negative effect on the dollar, whilst the two mavericks Trump and Sanders might be expected to have a negative effect on stocks (due to corporation bashing policies), but a positive effect on the dollar due to their protectionist agenda.