Caution towards any extended movement, but not fighting present upward move

Market Review

The markets were in a relatively tight range yesterday pre-Fed, as during the afternoon there were no data being published that held any note, with exception of the Department of Energy numbers which eventually showed our view on a much higher than inventory then consensus was correct and sent the commodity south, briefly through the $87 handle. In terms of equities it remained quiet until the Federal Reserve minutes were posted at 1900BST showing a fear of slowdown of the global economy, dollar strength and a lack of inflation, which sent markets higher as this indicates that an accommodative stance towards the economic recovery may continue. As a caveat to this it was also mentioned that markets may have priced in a less aggressive rate rise than what has been the thought within the Federal Reserve. This gives room for confusion and means the coming sessions until the next meeting may give a mispricing in the markets of assets which can exaggerate the move in a months time. In terms of strategies the S&P was perfect in terms of entry and target – whilst no other entries were obtained within the allotted time.

Today's Fundamental View

This morning has seen further moves which can be traced back to what is taught to be a dovish FOMC, and we believe the news will be important in the coming weeks; amid no new guidance is released from speakers that contradicts the new view. In terms of the two sides discussed above, we urge on the side of caution towards any extended movement, although until we get any form of confirmation we will certainty not fight the upward move. One thing we believe it is important to note is the dollar focus, which will weaken should the Fed decide it is overvalued, or reached a point in which it is damaging to the economy. This will not be a part of their official stance as the G-7 agreements prohibits nations from this type of behaviour, albeit it seems to have become the norm during the GFC that if you really need to – its ok. Just look to Japan and the wide acceptance they have received for their easing program. At this point in time it is more likely to be covered up by trying to achieve other goals. Initial jobless claims has been stable over the last months, and we expect nothing less today. Three readings in a row below 300k is phenomenal, and we urge traders not to start believing that 320k is a bad number. This will still keep the longer term average low, and any relatively near the psychological handle should be treated as good data and will not lead to a sell off in equities. Mario Draghi is scheduled to speak in Washington today, and will have a conversation with Federal Reserves Fished, a known hawk and a voter on the FOMC board. We expect some hawkish comments from Fisher, especially considering last nights minutes, although the significance considering his stance is already clear to the market we question. Today’s strategy is long equities, with a positive correlation on bonds as this is a monetary policy move. Crude oil should continue lower as production and inventories continues to move higher.

Alternative View

No news may lead to low volume and adverse market conditions. Monetary policy will be dictated by arbitrary speakers which can alter direction of the market.