Europe flat as US futures hold 2,000

Market Review

Yesterday was a relatively quiet. There were scheduled peace talks between Ukraine and Russia which arguably had a positive effect on the sentiment, but as for the outcome of the talks the results can be played down. Ukraine is opening up for a seize fire with Russia, whilst Russia comments on the same topic this is something it needs to negotiate with the separatists. In terms of crude oil this is where we saw the largest movement with a large spike to the upside at NYMEX open, though ultimately it was fully reversed 2 hours later. Other than crude being stopped, the entry on T-notes was hit as the edge of the range was tested, before it went down to hit 1 positive for the session. We say this despite the Durable Goods Orders increased at an all time rate – though this was purely due to record orders from Boeing, and the core number revealed that looking away from these airplane orders which have already been priced in, the overall take from it was negative. st target. In terms of data the consumer sentiment was better than expected and arguably the biggest

Today's Fundamental View

This morning has been testing the patience of many traders due to the share lack of volatility and tight ranges. The news flow has been low and the only notable on the schedule is the Department of Energy numbers which we believe will show an overall in line number on the headline and neutral overall with the components taken in to account as well. In terms of other data there is none, meaning we are looking at a quiet session ahead. There are two topics that are likely to occupy the headlines today. First, it’s the Ukrainian situation. There has already been reports on armed military infantry carriers crossing the borders to Ukraine from Russia, and we assume the news flow to continue for better and worse in terms of risk asset movement, though we will not commit to the positivity of it. The other and notably more important is the policy changes that larger institutions have started expecting from the ECB on September 4 th . Deutsche have called out carefully for QE to be revealed, though not the generic version which other nations have unveiled throughout the crisis. The ECB will be buying private bonds, helping with liquidity and lowering yields directly to private companies, as opposed to lowering government bond yields which in turn will make the situation more liveable for the private sector. The call from analysts seems a bit far fetched to us as we have yet to see the results of the targeted LTRO which is due to start in September and might bring in up to €700 billion in funding, effectively easing the liquidity in the Eurozone by a huge amount. We believe it is pre-mature to expect any movement on the monetary policy side yet, and if we know Draghi correctly he will shortly correct the public opinion, despite his dovish tone at Jackson Hole. Today’s strategy will be long equities and carefully long on bonds due to what we believe are unreasonable market expectations which we do not wish to trade against. Crude oil seems to be on the front foot, and the USD may strengthen.

Alternative View

Miss on headline data may lead to a move down in equities and invalidate our strategy. Any geo-political risk should be carefully analysed and should the talks between Russia and Ukraine come out as not constructive we may see a push higher in black gold.