Euro weakened, then rebounded after mixed manufacturing numbers across Europe

Market Review

Yesterday’s market movement in equities was largely range bound, analysing them real time may have led some traders to believe otherwise as there were some reasonably high momentum moves at times. The week as a whole now has seen a decent range for the S&P500 between Monday’s low and yesterday’s high, which perhaps is not surprising as we are awaiting payrolls numbers out of the US on Friday which in times of uncertainty around monetary policy can lead traders to be fairly non-committal ahead of this. In terms of data it s largely been disappointing; although there is a caveat to it. Yesterday’s Consumer Confidence number was posted at 86.0 vs expected 92.2. On the face of it this is a huge miss, although considering historical data, this is the third highest this year. The summation of the strategies were similar yesterday to the day before, where treasuries and S&P were both stopped, although the Nasdaq strategy worked well and secured the followers of the strategy profit as it obtained both targets.

Today's Fundamental View

This morning has seen manufacturing numbers being posted across European borders, with a largely mixed result; with a large negative being the first contraction in the German number since last summer, albeit at that point the trend was upward moving from the slump of 2012. Initially the euro weakened against most currencies, but has now rebounded to earlier levels. The move has also been seen against the Swiss franc, although rumours has it this is also due to the SNB preparing to defend the 1.20 handle, which they have previously pledged unlimited support for. The market is set for a busy afternoon as the ADP Employment data will be posted at 13:15, and being one of the best indicators for Friday’s 'el gordo' there may be some exaggerated movement that can get particularly equities moving, but should also for monetary policy reasons be a good trade on both the currency and bond side. We remain positive on payrolls data. In terms of manufacturing data we have seen a steady increase in this since the start of the year, and although there may have been a peak last month we do not see a reading below the summer average as plausible at this point in time. For crude oil, the DOE numbers are expected today at +600k barrels, although the API reading overnight was signalling a slightly more bullish reading, and the entry may for this reason be long. Not to forget the Hong Kong protests, they have continued overnight, demanding a fully free election of their local officials. The Chinese public holiday which marks the 65th anniversary of the founding of the People’s Republic of China is normally a great time for retailers; although with delivery and stock issues the retailers have found this time around especially difficult. The strategy today will be carefully long equities and bonds – which arguably is on the risky side considering the re-test of last weeks high.

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.