Bullish sentiment on equities to remain

Market Review

The earnings season continued to outperform analysts’ expectations with three large-cap technology companies reporting after hours last night. Apple, Facebook and Qualcomm beat forecasts overnight with Apple reporting $11.62 EPS versus an expected $10.17; Facebook reported a $0.34 EPS, beating expectations of $0.24; Qualcomm, the manufacturer of the “Snapdragon” chip, reported $1.31 EPS over an expected $1.22. Apple also announced a further $30 billion increase to their share buyback plan, taking the total to $90 billion. Facebook’s revenue from mobile advertising in the first quarter came in at $1.47 billion, with their revenue coming in at $2.5 billion from the advertising division alone. As the technology sector had an underperforming first quarter, this could easily be the catalyst for a further bullish extension to the upside. Ahead of earnings volumes remained light as the majority of players remained cautious ahead of Apple and Facebook, continuing the lighter tone to the week. The strong earnings from the S&P 500’s largest sector resulted in a move higher in the S&P 500 last night with the June future contract moving to a high of $1880.75. Data points from yesterday’s afternoon session included New Home Sales reporting in at 384k versus the consensus expectations of 450k. This resulted in a sharp reversal in the downtrend we saw in the bund before the price continued to drift lower, continuing the risk-on move. The S&P strategy entry was filled but no targets were obtained. The EURUSD entry short remained unfilled despite a cautious bullish overview, however the EURUSD ended the session lower, narrowly missing out on second target. The T-note strategy was stopped after the move higher due to the lacklustre New Home Sales number and Crude was filled and moved towards our first target but failed to fill the strategy exit. Crude was however capped to the upside at $102 per barrel, having tested this level several times we moved for a second extended move lower.

Today's Fundamental View

Thismorning we saw German IFO Expectations come in at 111.2, just below the high of the year posted at 111.3. The underlying subcomponents came in mixed as the current assessment came in lower at 115.3 versus the expected 115.6. Expectations posted a beat coming in at 107.3 versus the expected 105.8. This drove the EURUSD to post a 9am high of 1.3842; in a risk-on move the Bund made a push to the downside, finding support at yesterday’s low before moving lower again to test the 50% level of the April Fibonacci series. Draghi’s speech at 10am produced dovish comments, reiterating the availability of tools such as asset purchases but emphasised the absence of deflation risk. This, as it has done previously, caused a short term swing towards Euro weakness however this was short lived. This short term euro weakness filtered through to the Bund making a move higher from its morning low but retraced the majority of the initial spike higher quite rapidly. As the second day in a row with European data coming in better than expected, we see the EURUSD remaining buoyant for the session with Draghi’s speech bringing no new comments to the market.

This afternoon contains several large data points; Initial Jobless Claims are expected at 1:30pm with a reading of 315k, Continuing Claims are expected 2745k. Durable Goods Orders is expected at the same time with analysts’ expectations coming in at 2%. Please be aware of sub-component readings, especially the Ex-Transportation number. We are bullish on the Jobless number this afternoon as we see no extenuating circumstances that could result in a worsening of the employment situation. 

For the session ahead we remain bullish on equities. The beat of expectations from some of the S&P 500s largest cap companies has reaffirmed the positive sentiment and thus our strategy for the afternoon reflects this. We remain Euro neutral-positive for the session ahead although we recommend traders remain conservative with entry and stop placement due to data this afternoon. We have a short bias on T-notes but due to the nature of its current market we are exercising caution. With the morning movement in the Bund this has reaffirmed our cautious sentiment; we also recommend avoiding utilisation of full contract allotment as data risk could move the market in either direction. We maintain our bearish sentiment on crude, with our entry at yesterday’s high. Due to the aggressive nature of the entry we are using a technically tighter stop; please adjust this accordingly.

Alternative View

Draghi’s comments have the potential to filter through into the US session and therefore could affect our bullish view on the EURUSD. Please adjust positions accordingly regarding fundamental changes in the market. In addition to Draghi the data releases, if outside of the range of expectations, could move the market in either direction so please use caution when trading around these times.