Twitter finds love, but doubts remain

Market Review

Yesterday saw the S&P go bid after the consumer sentiment number saw a rise from last months 86.4 up to 90.9, making it the highest reading since October 2007. The reading is of course representing the optimism of summer, but more importantly shows how positive the consumer is on the back of the current economic recovery, and we would like to remind our readers that with just about 80% of the US economy made up by services, it should perfectly illustrate its importance towards the revival from the financial crisis and may be an indicator towards today’s Advance GDP reading. The late afternoon saw some weight coming in to risk assets, with the sanctions list being revealed and included measures on the Russian banking sector, with the newest sanctions prohibiting US citizen’s and companies to finance five of the six state owned banks in Russia; effectively cutting off a large source of capital markets from its reach and further isolating Russia. Crude oil reacted negatively on the news, though retraced it later on in the session. The entry level on the commodity was obtained and first target reached.

Today's Fundamental View

This morning has seen some strength going through the USD as sanctions are being absorbed by the markets, however the Russian MICEX is currently up 2.28%, illustrating that the market perhaps had expected sharper reactions from the authorities and there may be a relief rally. Twitter released earnings last night that beat on investor expectations by finally having an increase in user base that was deemed decent. As outlined in previous reports this is something we have been positioned for although now we are currently debating on offloading the shares due to the doubt of whether a service that puts short messages out to the world and sells advertisement is worthy of a value of $23 billion. Twitter management is currently doing great and it is a good company. Twitter is everywhere, but for the value to be real it needs to be reflected in hard cash at some point. The Nasdaq is likely to have a slight positive sentiment on the back of it. The data this afternoon is of high importance, seeing the ADP Non-Farm Payrolls at 13:15BST expected at 234k. This is not a reflection of the previous decent employment number at 281k, though there may of course have been a seasonal effect of summer workers, but we are looking for this to continue and we remain bullish on the data. Preferably it should be above 250k, but anything above 230k and it is unlikely the market will be disappointed. Looking at the previous reading can create a false sense of expectation as it was outside what may be considered normal range. The US GDP number disappointed massively last quarter with a 0.1% reading which was considered weather affected and was largely dismissed by traders as a fad. It is for this reason really important that the reading today is at least over the 3% handle to prove that this was in fact true. Picking up the slack from last quarter, and with car factories not closing for the summer we believe the number may beat quite heavily on expectations in the region closer to 4%, which would set the S&P on track for another all time high and 2,000. The strategy today will go long risk and crude oil, whose API was quite a bit lower than the expectation for DOE this afternoon.  

Alternative View

Comments from Russian officials may halt the move up, though this should still lead to USD strength in a risk off move. Please remain aware of all developments coming out of Ukraine, Russian and the Middle East and keep a conservative outlook with regards to risk. Over exposure in markets with such uncertainty is dangerous and should be avoided.