Euro indices on the front foot this morning, have yet to breach Friday's high

Market Review

Last week was quite the rollercoaster in equities, with large whips in both directions, but ultimately the downside saw a stronger momentum. Data last week was for the most part bad in Europe, with the low numbers being so consistent there would be pointless to go in to detail on which was worse. In terms of US numbers it was a mix, as a few headlines missed the expectations on Wednesday; PPI, Retail sales and Empire State Manufacturing. The misses, against our own conviction, spurred some heavy selling pressure on the back of what in the market was rumoured to be fear of slowdown in the US economy. This is a perfect example of irrationality, and perhaps even better of how nervous the market is at the moment. With the US labour market posting jobless claims at the lowest levels since the year 2000, it is clear that the US has not shown any signs of a slow down, and suggestions of getting in early should be shrugged off. Reading into the bearish sentiment in equities on a closer level, it is clear that Europe's consistently worsening numbers has actively contributed to last weeks sell off. Nasdaq was the only strategy that hit the entry and first target last Friday. 

Today's Fundamental View

Waking up to the markets this morning, we read a group of investors are planning to take Reebok off of Adidas hands in an effort to revamp the business which has been tumbling since the German sports equipment manufacturer acquired them in 2005 for $3.8 billion, significantly more than the todays bid of $2.2 billion. European indices have been on the front foot this morning, but has yet to breach the high of Friday. Bonds have equally been selling off, which may be an indication that the dramatic movement to the downside in risk assets last week is coming to an end. Of note, the ECB have started the purchase of covered bonds, which will increase their balance sheets as well as lowering the risk in the Euro area, combined with re-starting the market for these type of bonds in Europe. As there is a very light data calendar today this may steal some of the focus from investors which may lead to a slow upward move in stocks. Overnight the Nikkei ended the day up 3.98%, which may help further to the upside of equity indices. Of interest this weekend, a submarine was spotted in the waters outside of Stockholm, and what may have been emergency calls have been intercepted with the Russian fleet. The Russians denies this, and the Swedish fleet is currently hunting for a submarine in the sea outside of Stockholm. Considering any European country would have identified themselves, the only countries of origin could be Russia or China. Today’s strategy will be long on stocks and short treasuries which goes against last weeks moves but more with our overall conviction of market direction. Crude oil strategy will remain short.

Alternative View

Monetary policy will be dictated by arbitrary speakers which can alter the direction of the market. We also suggest that traders remain wary and informed of any geo-political risk events that may develop as the day progresses.