Europe shares weak as Ukraine tensions build

Market Review

What an interesting week we have put behind us. After trading in all time high territory overnight on the 4 th , a sell off was sparked which saw the S&P fall to 40 points by day's close in a single session. This continued on Monday though the Friday saw it being reversed and suddenly newspapers went bullish again: It seems journalists nowadays have the same short-term memory capacity as a goldfish – only remembering what is just in front of them. The ECB was in focus and are now being criticised from being in limbo between a dovish and hawkish stance in alternate meetings, and currently we have gone from being big fans of Mario Draghi to shying away and being guilty in almost joyful thinking back of the days of J.C. Trichet. Strategies last week were somewhat mixed but, for the most part, we did not have Lady Luck in our corner, though on the month we are still safely positive. 

Today's Fundamental View

This morning have seen little or no action in the S&P, whilst the FX sector has seen a decent move lower on the back of half way decent Industrial Production numbers out of the Euro-zone, in line on the headline but in terms of the revision number we are up from the previous to neutral from -0.2%. The EURUSD has still sold off – mostly on the back of speculation of quantitative easing as RBS has allocated a 100% chance (they are not holding back and one should applaud them for their commitment) to the ECB embarking on QE at some point in the coming years to counter deflation which they seem to be more concerned over than Jens Weidmann is over inflation. One may also argue that the USD has strengthened on the back of increased tensions in Ukraine, as the second siege by Vladimir Putin's forces have started in the Eastern part of Ukraine. The Ukrainian Governments offer to the rebels of putting down their weapons by Monday with no prosecution has expired, and there is now expected to be a sizable military operation in the east of the country. All this geo-political tension seems more important than most other market moving events on the table today, though Retail Sales and Business Inventories will have a bigger immediate impact as the situation in Ukraine will be a continuous effect rather than one off. For this reason we are surprised that the price of crude has sold off and we will be looking to catch it in the fall to go long as seen on the strategy page. In the wake of heightened uncertainty are bullish US government bonds which we are sure RBS will be extremely pleased with, as well as short strategies on the S&P and EURUSD. 

Alternative View

Adverse comments from central bankers may adversely affect the markets, as will any developments in Ukraine.