US data should bring back volatility to all traders joy

Market Review

The e-mini S&P was initially very slow yesterday and was trading in a very narrow range. As the afternoon data came knocking in the shape of New Home Sales and Consumer Sentiment we saw the releases both post numbers at 5 year highs which ultimately lifted the stock index up to all time highs [by one tick]. The move was muted in European indices which was somewhat surprising, and this helped mute the reaction and eventually it lead to the stock index selling off to new lows for the week, which European stocks helped fuelling. The Nasdaq was a leading index and went bit way ahead of the S&P at cash open ad arguably saw the largest sell off from high to low in tick value. Bonds were for the most part positively correlated with risk assets, though this was reversed in the evening as the Ukrainian President considered ending the seize fire ahead of the Friday deadline.

Today's Fundamental View

This morning has seen Italian Retail Sales being released at the highest number since August 2012 which has spurred some buying activity in equities on both sides of the pond. Surprisingly enough, the German bund has also been bid, though other than yield breaching 1.3% and trigger of stops on the break of last weeks high, also through the high of May 2013. With US GDP number, Durable Goods Orders, as well as the Department of Energy inventories numbers in line for release we believe the session will be one of the more volatile this week, to all traders joy with the slow moves for the last week and a half. As the data has significantly improved since winter we believe there is room for upside on the durable goods side, though the GDP is the final reading and it is important to remember that data was lagging due to weather some three months ago when this data was made, and hence it is not an indicator of the current economic climate. A bad number is therefore already discounted for and should not see any meaningful traction in any markets, though we are likely to see upside should the number for any reason surprise for the better [which also is unlikely]. The industry group American Petroleum Institute (API) released its inventories numbers at 4 million barrels yesterday evening. With the official government numbers being posted at 1530BST this afternoon some traders may look at the massive 6M deviation from the market consensus at -1.7M. For this reason, as well as the oil output in Iraq remains we believe crude is finally set for a correction. Should our prediction come true we may see a move through the 105.11 handle by close of business. The dollar should strengthen and US10Y will weaken, although the safe haven asset may be caught between monetary policy and geo-political uncertainty

Alternative View

Hawkish monetary comment speakers from the Eurozone may adversely affect our strategies.