Slide in risk assets continues

Fundamental View

Yesterday had a quiet calendar with no major releases of data from the US and only one data point of interest from Europe. German regional CPIs came in below expected with the overall figure posting a reading of 0.20% against a previous reading of 0.60% and an expected 0.30%. This served only to compound the Greek political risk issue for mainland Europe and we saw major bourses head lower in both the Eurozone and the US. The Bund, however, was seemingly unmoved to the upside as money flowed out of Europe and into US safe-haven assets. The dollar index rose to a 9 year high with both the EURUSD and GBPUSD printing fresh lows for the session. T-notes continue its March higher and pushing above 128.000 (2% yield handle) and the yield spread between the US 2yr and 30yr are at their tightest levels since 2009, the bull flattening reiterating the preference for US government debt over even the German 10 year. Crude also sold off after statements from the Russian Energy Ministry saw production of crude rise to a post-Soviet era high; this in conjunction with the discounted prices Saudi Arabia are offering European buyers has continued the slide below $50 bbl. This has led energy stocks lower and thus the S&P 500 has fallen also, adding to the losses posted by correlation moves due to Greek political risk.

Today’s View

This morning we saw Chinese HSBC Services PMI print slightly higher than expected with a reading of 53.4. This has not, however, provided any support to the slide in risk assets and the majority of products have continued lower. This is mainly due to the fall in oil prices, ignoring any notion of cheaper energy prices being positive for production. We also saw Spain, Germany and France print higher than expected Services PMI data, providing brief respite but ultimately failing to lift market sentiment. The Italian number printed lows of 49.4, just shy of the 50.0 benchmark but ultimately this did not lead to a further leg lower. The UK printed lows at 55.8, below the 58.5 expected and this led to a large move lower in GBPUSD, breaking through 1.5200. The EURUSD also moved lower on the back of this in a Euro-weakening/dollar proxy strength move. The correlations are prevalent today and this will form the basis for our strategy. Looking ahead we have US Services PMI, Factory Orders and ISM Non-Manufacturing. It should be noted that Factory orders are for November and therefore will hold less weight than the ISM Manufacturing and Services PMI.

Alternative View

Any releases below expectations in the US have the potential to reverse the gains seen in the greenback over the past few days. Although this is unlikely given the risk in Europe and the poor data from the UK this morning, traders are advised to remain reactionary to any data and risk manage themselves accordingly.