Long equities and treasury notes ahead of FOMC Meeting

The Day So Far

Yesterday’s rebound in equities was followed by quieter trading this morning as investors paused for breath ahead of the ‘meat’ of the week data-wise. The Greek situation continues to veer further away from a positive outcome, with Greek PM Tsipras angrily blaming the IMF for the country’s predicament, saying that the Fund ‘bears criminal responsibility for the situation in the country’ and Greek Finance Minister Varoufakis saying that Greece will not present a list of new proposals at tomorrow’s Eurogroup meeting. Whilst some of this can be written off as political posturing, the uplift in rhetoric has certainly rattled markets. Equities are on the back foot this morning, after beginning the day positively. The Dax continues to oscillate around the critical 11,000 level.

Elsewhere, the MPC minutes released this morning revealed little, unanimously agreeing to keep rates on hold, as expected. The pound strengthened sharply versus the dollar, trading above the 1.57 handle for the first time this month after strong UK employment data showed better-than-expected wage growth.

Finally, crude also climbed throughout the morning after the API inventories released last night showed a another contraction in supplies, with a drawdown of 2.9 million barrels. 

The Afternoon View

This afternoon is data-light but likely to be headline-heavy, with just 24 hours to go to the Eurogroup meeting expect plenty of rhetoric and ‘hot air’ and be prepared to react to comments and fast moves. This evening brings two key events for defining the rest of the year and unfortunately they are both taking place at the same time, with the Yellen’s post-FOMC press conference and IMF’s Lagarde speaking due at 19:30 BST.

Of the two, Yellen’s comments are likely to take precedence over Lagarde’s, given that the IMF Chief is unlikely to rock the boat ahead of tomorrow’s Eurogroup meeting. For Yellen, although there will be no change in monetary policy, it will be very interesting to note firstly the Fed’s outlook for inflation and growth and whether there has been any change in the Committee’s expectations regarding the trajectory of interest rates. We are looking for longs in equities and t notes to trade higher with Greek risk abound and ahead of the FOMC tonight.