UK economy returns to pre-crisis levels

Market Review

All was set for an interesting session yesterday as the afternoon was relatively data heavy with the release of Initial Jobless Claims and New Home Sales. The first release came out much better than expected at 284k, and the number was actually so good that many analysts decided to question the validity of it, claiming car factories being open that normally would during summer as a seasonal effect. We choose to believe another side – that American manufacturing industry is actually doing well and need to keep open for business to keep up with the demand for their products. This is not a seasonal effect as much as it is a reflection of the state of the economy. It is improving, and the move in the dollar after the release was too muted and we will see a pick up in USD strength in today’s session. The New Home Sales yesterday was surprisingly disappointing and fell by almost 100k from last months reading, halting what could have been a later reaction to the job’s number. No strategy entry was obtained yesterday. On a tech note, rumours had it that Samsung was looking to take over the struggling Canadian technology company Blackberry. The share was up 5.60% on the day on the back of these rumours, and as it stands Amplify is currently 21% onside on the position we announced a strategy on in February.

Today's Fundamental View

This morning has seen the release of lower than expected German Ifo data, a survey which measures the sentiment amongst manufacturers, builders, retailers as well as wholesalers about their expectations for the next half year. Although a drop to the lowest level since October last year it has taken quite a bit of time to feed through to European equities but finally made new lows just before half eleven this morning. The EURUSD did get hit, though widespread dollar strength supports our argument above that the job’s report from yesterday afternoon is currently going through the digestive system to traders who are re-shaping their view on it, as we believe it was rather phenomenal. This afternoon we will see the release of Durable Goods Orders from the US, which will be the most key data we have for this afternoon. The number will help shed light over some of the questions that arrived yesterday on the back of the mentioned data in regards to the automobile industry – but it is safe to say we remain bullish, though it may have a double whammy negative in the event of a disappointing number. If better than expected we should see the USD continue its strength and head towards and through the 1.34 handle. Similarly yields should rise on bonds, and equities should continue higher. On the demand side we believe crude will see a move up and prefer this to a short on the dollar strength, much helped by the situation in Ukraine and the perpetual state of affairs in the middle east. There are no earnings of note expected, though we will continue to monitor Blackberry for news on takeover. Should Samsung state that there is no interest from their side there may be some negative pressure on the stock and Nasdaq. If the opposite is true then this can trigger upside pressure in stocks as it indicates appetite for risk.
 

Alternative View

Comments from Russian officials may halt the move up, though this should still lead to USD strength in a risk off move. 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.