The Equity space finished last week with a mixed session with initial weakness at the US cash open being reversed as a result of earnings with Google and Microsoft gains offsetting IBM weakness following a barrage of Tech earnings on Thursday night. There was no economic data of any note on Friday and so it was again Eurozone monetary policy comments that shaped the session for the Euro as Schaeuble offset Weidmann's dovish comments from earlier in the week by recklessly saying the ECB should reduce liquidity in the Euro area which sent the Euro back above the 1.31 handle.
Today's Fundamental View
This morning has seen some reasonably positive equity markets being accompanied by some Euro weakness as ECB's other chief hawk Ausmussen echoed Weidmann over the weekend by saying that an ECB rate cut is possible if data warrants it. Perhaps the S&P has benefited from the capture of the second Boston bomber but this positivity has been offset by Caterpillar earnings that have disappointed the market across all fronts. The Italian political uncertainty continues despite the eventual re-election of President Napolitano and any headlines on this topic are potentially market moving. We will focus on the US Existing Homes Sales data due at 15.00BST but aside from this we expect the initial equity strength from this morning to be reversed and the Euro to remain under pressure due to rising rate cut expectations. Crude has been testing the key resistance just above the $89 handle and we see this holding and a move lower in tandem with stocks.
Bullish Existing Home Sales data may lift equities and create more of a risk-on move across the assets resulting in Euro and crude strength and T-Notes weakness.