Mixed-to-good european data morning

Market Review

The S&P sold off during yesterday’s session after the release the US GDP number, which came as a surprise due to the number beating expectations massively with a 4.0% versus the consensus of 3.1%. The sell was halted at our entry point, and the strategy worked three times during the course of the session, and the last time hit second target. Crude oil saw inventories drop more than the expected number, and after an initial few minutes of support it sold off to the pivot, where it met temporary support at the pivot and the 50% Fibonacci level of 14th/22nd July. The strategy entry held firm for a very short time until it broke in a few seconds with a 30 ticks move. The evening session was busy with decent movement after Janet Yellen saw the first dissent of the Federal Reserve current forward guidance, with Yellen suggesting the employment and inflation data is cancelling each other out. This goes slightly against our view, of higher employment levels and higher inflation and we agree more with Plosser, who was the only one voting in favour of a rate hike – though this should be looked at as a percentage increase, or even a countdown rather than one man wanting to increase interest rates. Doing so now would severely harm the economy, and it is rather a message to the market.

Today's Fundamental View

This morning we have seen data from Europe as mixed to good, the most important data pieces being European Unemployment as well as CPI Flash estimates. Both the releases were relatively in line, though the retail sales released earlier out of Germany were more positive than market consensus. The most important data this afternoon is initial jobless claims which have been very stable as of late, though last week saw a blip down through the 300k handle and recorded a multiyear low. We are not looking for a number that good, but assume anything below 320k to be acceptable, but preferably below 310k to not see any extension to the sell off we have seen in equities this morning. The Chicago PMI data have for the most part beat on expectations this year, and we are looking for better number also today, with sentiment being good amongst businesses. We have tried avoiding writing about the case of Argentina versus the hedge funds, where they have made a court in the US deem them to pay the debt they defaulted on 10 years ago. We believe this is a nothing case, for several reasons: The US has no jurisdiction in Argentina. A court in the worlds largest economy does not choose what another sovereign pay and not. The country went bankrupt 10 years ago and made it clear it will not pay outstanding debt other than the haircut offered. It is simply impossible for them to re-default on debt it had no intention of paying in the first place. The danger of course arises when hedge funds use their influence to stop payments to debt that it intends to pay as they feel they should be ahead of them in the line. Whatever comes next, if Argentina wants to pay its debt, it will and it can amid being able to deliver the money to the bondholders and not being stopped by the government in a different country. There is no default. We are very disappointed in the one sided media coverage of this story. In regards to the Russian sanctions German companies including Adidas have commented they will cut their earnings forecast.

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.