Quiet trading to be continued with no data expected

Market Review

There were quite a few events through last week but mostly markets were continuing to be dominated by various the geopolitical scenarios playing out. Of the fundamental economic developments, the Italian GDP number was hyped out of dimensions as the country slipped back in to recession, when the truth is that there has only been a single GDP number above zero since August 2011; and the anomaly reading was in fact the +0.1% for Q1. No shock, and not worth raising an eyebrow over it! The other non-event was Draghi, whose message was that countries that had implemented structural reform measures were starting to see proper economic benefits from it and were in recovery mode, whilst other countries (ehm.. Italy/France) knew what they had to do if they wished to improve the state of their economy. In regards to the potential of QE, we see this as a very slim possibility as the peripheral bond yields are currently extremely low, and will rather see the ECB underwrite asset backed securities and hold in the area of 10% of the risk in case of a default scenario rather than exposing themselves fully via direct purchases. This in turn they hope will increase risk taking and improve credit conditions.

Today's Fundamental View

This morning has been quiet and has not really seen any movement of note. The S&P has been in a tight range with a slight drift higher over the last 3 hours and has provided very slim trading opportunities. We assume these conditions to continue through this session as there is no data expected, and the news side of things may be rather slim. With the US finally being officially involved in Iraq and providing air support for the forces trying to fight back ISIS. With many strikes needing ground support for accuracy we believe there will be more troops on the ground helping the local forces. In Ukraine we are seeing a similar situation where the separatists even suggested a seize fire which was immediately rejected by Ukraine, and in turn demanded all rebels to stand down and capitulate as it is now very apparent that they are going to lose the war. We remain somewhat surprised that Russian forces have not intervened, and assume there have been high level talks that have kept the majority of Putin’s army out of the sovereign, as social media has revealed their presence. In Gaza there are attempts on yet another cease fire. With this we believe the price of crude may be set for a fall through today’s session, and has the most fundamentals to move on compared to other assets. We remain short on treasuries, and are with this bullish on equities. Similarly to the movement we have seen this far today we hope traders remain vigilant to low movement and do not overtrade these conditions, and should at this point in time be looking for narrow ranges.

Alternative View

Monetary policy comments can adversely affect the markets. Please remain aware of all developments coming out of Ukraine, Russian and the Middle East and keep a conservative outlook with regards to risk. Over exposure in markets with such uncertainty is dangerous and should be avoided.