DAX moves to all-time highs as bullish sentiment continues

Fundamental View

Yesterday’s session began with a decent risk-on vibe in European bourses; and the DAX has moved to break the all-time-high this morning as the bullish sentiment continued overnight and into this morning’s European open. The factors driving the move are the Ukraine ceasefire and very marginal progress with the Greek saga. The DAX is also benefiting from a cheaper Euro as the German economy is the country best placed to benefit from a weaker currency, their exports becoming increasingly more attractive. The S&P 500 also made a leg higher, breaking its all-time high this morning. This has come in the wake of weaker than expected US data, with retail sales and jobless claims coming in negatively. This was against the majority of our analysis as we were closely monitoring consumer confidence, at a multi-year highs and lower oil prices at the pumps to stimulate the consumers’ propensity to spend. As a result of the weaker US data we saw EURUSD break above the 1.14 handle as the dollar weakened across the board. In terms of crude oil, yesterday saw another near 5% move, this time to the upside. But, we also heard interesting commentary on the wires this morning regarding the Baker Hughes Crude Oil Rig count. The general assumption has been that due to the falling rig count affecting supply, oil prices should be rising again due to this restriction. The issue that we have seen here is that the Baker Hughes survey does not specify the type of rig which are being switched to idle. Oil prices have remained low due to vertical rigs being trimmed, rather than horizontal rigs which yield three times the output of a vertical rigs and are far cheaper to run. This means that supply is still pushing forward in the US and has allowed crude to remain at lower prices. So in the days ahead we expect oil prices to continue in its recent range between $48 and $54.

Today’s View

This morning we had the German GDP reading for Q4 2014, posting an increase of 0.70% against the expected 0.30%. This growth was not only aided by domestic demand but the stronger levels of aforementioned exports. We also saw a build in the Eurozone GDP readings, beating expectations across both quarterly and annual readings. This initially had no effect on the Euro or any European bourses but we have begun to see a decline in risk appetite as Poroshenko, the Ukrainian President, has been down-playing the cease-fire agreement made just yesterday. The main focus this afternoon will be on the University Michigan Consumer Confidence data and the Philadelphia Fed survey. After a rare set of weak data from the US yesterday it will be important to see if we are now beginning a period of deteriorating US data or not. We remain positive on sentiment however ahead of the US Bank holiday weekend with a long strategy for S&P, EURUSD and oil and a short strategy for T-Notes.