Euro weakness after low Italian Services PMI number

Market Review

Due to yesterday being the first trading day after Friday’s payrolls number from the US, it should come as no surprise to experienced traders that there was a lack of volume and momentum, and traders should have been favouring entries at the extremities of the range. As the session went on there were no tier 1 news data, and considering the geo-political tensions have yet to inflict proper bottom line damage to larger companies in the same way that the supply of crude have not been hit by any of the escalations we have seen this year there was no room for a sell off in risk assets. It did however not stop the S&P from attempting to break through the pivot handle, but this was retraced within the hour. The stop on the strategy was obtained and remained the low of the day. The strategy on crude oil obtained first target three hours after entry, whilst T-Notes saw a small loss, with no target obtained.

Today's Fundamental View

This morning has opened with more volatility than any point during yesterday’s session due to the morning being data heavy, with the release of European wide services PMI numbers. The German number was posted in line with expectations, with the Spanish beating expectations. The currency market took most note of the Italian number however which was posted lower than expected, which has lead to some euro weakness. The British release was higher than estimates, and with the first decent piece of data since the beginning of July sterling has strengthened against most other currencies. Earnings have been stellar as of late, and several large scale companies in Europe, including BMW and Credit Agricole have beat on the headlines. This has helped the safe haven bund to sell off, and US treasuries have followed suit. Crude oil has not been moving. This afternoon we are anticipating ISM-Non Manufacturing, a number which has been trending higher since winter, and last month stabilised around the 56 mark. With good recent data in mind we assume the number to increase this month and bring equities up to make new highs for the week. Factory orders have disappointed lately, though we will be surprised if this continues. Crude oil is not likely to see an overly capricious session due to market saturation of the recent geo-political risk. With Israel and Hamas attempting a second cease fire we remain sceptical regarding this development, though the markets will not shrug on the back of the first news of it being broken as it is unlikely to affect the supply of oil in any way. We will closely monitor the situation in Iraq, with ISIS having taken over one of the largest water dams in the country. Today’s strategy will be long equities and crude, while dollar denominated currency pairs and treasuries should continue to sell off further

Alternative View

Comments from Russian officials may halt the extension higher, though this should still lead to USD strength in a risk off move. Please remain aware of all developments coming out of Ukraine, Russia and the Middle East and keep a conservative outlook with regards to risk. The ongoing pandemic in Western Africa should also be monitored with regards to effects on Emerging Markets; mining and agriculture have been the worst markets affected thus far. Over exposure in markets with such uncertainty is dangerous and should be avoided.