Silver hits 4-year low as commodities slide

Market Review

Last week was arguably the most important one this month for several reasons. Firstly we had the first uptake of the TLTRO, which surprisingly showed a far lower appetite for these short term loans than previously expected and outlined by the ECB. The implication of this is that the credit easing efforts put forward will not reach Mario Draghi’s balance sheet target of €1 trillion, which means the central bank may be closer to bringing out full scale quantitative easing. The Scottish referendum ended with the ‘No’ camp winning with a majority vote, and Scotland will remain a part of the United Kingdom. Sterling initially bounced from the lows in the day’s leading up to the referendum, but after the actual vote was cast we saw a move down in line with the expected USD movement. We have argued we believe the rebound will happen over the next few months, and we have an unlikely scenario for the currency to stay below the 1.65 handle for much longer. The third major event was the listing of Alibaba, trading up 38.07% in its first day of trading after a successful IPO. No entries on the report were obtained before the deadline at 1700BST. 

Today's Fundamental View

This morning has seen a slow market with the S&P being stuck in a tight range as well as crude having plotted several doji’s this morning with S1 acting as support. Bonds have also been quiet, with both the US10Y and the Bund moving sideways without much volatility. From a technical perspective it is worth noting that the Russell 2,000 index is about to achieve the much dreaded ‘Death Cross’, which happens when the 50DMA crosses the 200DMA and is usually followed by a continued sell off . We will be monitoring the set up closely. Although we are expecting a very slow session, we have New Home Sales at 1500, expected at 5.19m. we also have Draghi on the newswires at 1400, speaking to the EU Parliament Committee. In company news, Tesco has revealed it may have overstated its results by as much as £250 million, which has led to a slide in the share price of nearly 10%. Despite this we expect a relatively bullish session with some positivity from the continued good data from the US which is the largest underlying economy of the companies listed on the S&P. We will continue to monitor the Alibaba stock carefully, and are looking for a sell off towards the $55 handle. Although at this point may be seen too far away from market price, it may become more of a realistic entry as weeks progress. We are bullish on stocks today and short all other asset classes 

Alternative View

Any geo-political risk should be carefully analysed, with continued focus on Ukraine as well as US data being a key catalyst for movement today. Monetary policy comments from the US will carry weight.