Money supply shows liquidity in Eurozone is higher than expected

Market Review

Entering last week we were concerned of the lack of data hitting the market and assumed it to be a relatively quiet one. Although we may have been correct in terms of data released, we were pleased to see some volatility. There were attempts of breakouts to the downside in both the S&P and the EURUSD, but overall the ranges are currently holding and the rally in equities may still be seen as alive. The small term correction has left the Dax just within sight of the 10,000 handle, and the sell off means it has underperformed its American counterpart, which is only 7 points away from the all time high. Many traders, including us, will still argue that the ultimate goal for the S&P 500 index is the key 2000 milestone. Last week we argued that it may even go beyond this and we still remain with this view. No strategy entries were obtained on Friday, though we were within a couple of ticks of entering crude oil.

Today's Fundamental View

This morning has seen some interesting upward movement in European markets, with the money supply showing there is higher liquidity in the Eurozone than previously assumed. The retail sales out of Germany were negative for a third month running and almost a whole percentage lower than the consensus. Initially this weakened the Euro and saw a negative effect, however the mentioned money supply numbers as well as in-line/mixed CPI numbers means we are currently trading in the middle of the range as the potential monetary response to this from the ECB remains unclear. Bad numbers may be good for the markets, though this will not be the case with mixed data. This afternoon is set to be busy with Chicago PMI data being released at 14:45 with a pre-release at 14:42BST. We recommend traders without early access to search twitter for the early number, and follow ZeroHedge as they tend to reveal the correct number before its widely distributed. We remain positive on US data, with the PMI number out of Chicago having beaten estimates two months running and generally PMI and other relevant indicators have been increasing from the month before recently. Pending Home Sales will be interesting as the actual sales number as of late have beaten expectations, whilst other indices such as building permits and housing starts have gone down. There may be several reasons, though looking at the year overall housing starts have so far been on an upward trajectory whilst 2013 in the same period had negative growth in the same index. We are bullish on equities today and do not believe last weeks low will be breached in the S&P. Similarly we believe the entry in US10Y from Friday will hold. We remain uncertain on crude as ISIL, the terrorist organisation known for crucifying rival fighters and people of other belief have declared a Caliphate in the areas they are currently occupying; meaning they will likely gain traction as other groups with a similar agenda will choose to join the rule of the self declared Caliph, al-Baghdadi. The area is likely to live under strict islamic laws which was last practiced under the Ottoman Empire, unless there is international intervention. The international community have so far been unwilling to enter the conflict, with the UK Foreign Secretary William Hauge Sunday stating the UK will not provide any military support. With the West choosing to stay out of the conflict we may see a temporary ease in the price of crude as there will not be in the occupiers interest to stop the supply; rather it may be in the interest of the Baghdad government as this may halt the money supply to the self declared regime. We are short term bears on crude for this reason.

Alternative View

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