Weidmann's comments put the ECB a step closer to a stimulative policy

Market Review

We had an interesting market yesterday as the tension over Crimea, or rather the uncertainty surrounding it, has somewhat been taken off the plate for the time being and focus were on US data; where the CB Consumer Sentiment was released at a 6 year high showing that the consumer sector which is a driving factor behind the US economic machine and makes up about 70% of it is properly on the mend and may actually defend that the leading S&P index is trading near all time highs. If you combine this number with US companies paying record dividends, this may actually defend the all time high price despite some macro risks from Ukraine and China in the mix. In addition to this we may see increased emphasis being put on the sentiment number as time goes by due to the NFP being extremely volatile in regards to revisions, and consumer sentiment if calculated correctly would not be good if there is not enough labour participation or work available. Other data yesterday was not uplifting as manufacturing data and New Home Sales missed on the headlines.

Today's Fundamental View

The ECB über-hawk Jens Weidmann was yesterday quoted saying “Quantitative Easing is not out of the question”. This comment puts the ECB a notable step closer to pulling the trigger on significant stimulative policy. The ECB convene on Thursday next week for their monthly policy meeting and expectations of a rate cut or a QE type policy have significantly risen in the last 24 hours. Peripheral bonds have been strongly bid this morning, along with equity market strength and Euro weakness as the markets further price in imminent policy action. However, Draghi spoke yesterday and didn’t altar his usual comments and so the Euro recovered a lot of yesterday’s losses after this, so things remain in the balance. We will continue to monitor closely any ECB comments into the end of the week. Data that is expected this morning includes Durable Goods Orders and Crude oil inventories, in which we are still bearish on the first – though we are extremely bullish on the crude oil number and believe the net overall build will be close to 4 million barrels compared to the expected, including distillates which more likely than not will be relatively bullish. Today we are going with a short strategy on US10Y where traders should be weary of any movements in the bund amid QE, long SPX, short EURUSD on euro weakening as well as crude short on the back of the inventories numbers. We expect volatility on monetary policy comments, especially out of European Central Bank members. The Ukrainian situation is somewhat put on hold, but we are weary of any developments in this region.