Market Review

We have now put a somewhat historic week behind us, and months ahead we will still be speaking of it. Janet Yellen’s first press conference turned out to be a firework of an event – though it is in hindsight and as we argued the next morning; the market overreacted. In summation, starting to hike interest rates summer 2015 or at earliest in June 2015, is the same thing. Also, the second statement is if anything more dovish than the first, and for this reason maybe the correct market reaction would be a weaker USD and not a stronger one. In terms of geo-political risk, Russia has decided that an increased military presence on its western boarders is the way forwards, and western leaders have decided that asset freeze and other sanctions is the way to deal with it. We think it is nice to know that our leaders do not want conflicts to escalate in a military sense, but when Neville Chamberlain is smiling to us from his grave it should serve as an indication that the approach may be a bit spineless. At the moment we have stated that Russia should not go further in to Ukraine or eastern Europe, as this would leave us with no option but to ask them nicely to stop or face further sanctions. Perhaps we should draw a red line on Poland again, it worked so well the last time… The only strategy obtained on Friday was crude, stopped by 7 ticks before hitting first target, which was the theme for the week.

Today's Fundamental View

As the story goes on we will be hearing more about Russia, Ukraine and other eastern European nations this week. In fact, it may be one of the biggest factors to consider when trading commodities. The important thing to remember when tuning in to Putin’s sphere of market moving commentary; the market immediately believes every word he says. If Russia’s supreme leader states that he does not have any ambitions in Eastern Europe then crude oil will fall. This has happened steadily since the crisis started and we expect it to continue, though please do not think it will lead to a continued move. His forces are still at the borders of the countries he is not invading [yet]. Another market movement signal may come from Federal Reserve members as they may be wanting to air their dovish and hawkish sides more independently, though we do not believe anything continuous will come from this. This morning we had good manufacturing PMI data come out of France – surprising us all as this was the first above 50 since February 2012! After a period of strength this was hit back by a worse than expected German number, whilst the combined EU number showed an in line reading. This afternoon we are awaiting Flash Manufacturing from the US, and with 56.6 expected, even if it miss the headline by a point it will still be the second best reading since January last year. Chinese data overnight was also worse than expected, and has fallen down to a 8 month low. We do not see too much market movement today, but have a bearish bias on all assets but crude oil.

Alternative View

Dovish comments from monetary policy makers may adversely affect the markets, as will any developments in Ukraine

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