Indices and Oil strategies

The Day So Far

The main focus this morning has been the Eurozone July 2015 inflation data announced at 10am. The headline annualised CPI was in-line at 0.2% but it was the Core CPI reading that has triggered the market reaction. Core CPI came in at 1.0% above the expected 0.8%. This puts the reading at a 2 year high and provides further evidence that the deflation trap has been avoided and that perhaps the ECB QE programme is having some effect at a consumer level. The Bund was the main mover dropping 50 ticks and giving back much of yesterday’s gains. The Euro has also benefited with a 40 pip move higher against the US Dollar with the 1.10 handle back in sight after a couple of days of heavy downside. T-Notes have been dragged down below the pivot by the Bunds reaction and the S&P has made marginal new lows for the day. Crude oil has also been heading lower finding a bottom for now at Wednesday’s double bottom at $47.39 and now has given back all of the $2 gains seen on Wednesday after the 4 million barrel draw down announced by the US Department of Energy.

The Afternoon View

Ahead today we have several key soft data points due for release. We have the Chicago PMI and the Michigan Consumer Sentiment final reading for July. May and June printed contractionary numbers in the Chicago PMI, this year lagging the second half of 2014 as PMI readings posted consecutively large beats of the 50 figure. This number is likely to remain unmoved from the past two months’ readings, although a print higher than 50 is forecasted. With expectations at 50.8 and a range from 48 to 53.8, any beats of the expected range, particularly to the upside, is likely to spurn further repricing of assets due to rate hike expectations. It should be noted that the Michigan number is the final reading for the month and the majority of this will be priced in already. Over the past few months the Michigan figure has circled the high point of the recovery from the Global Financial Crisis so any further upside in this measure will provide some dollar strength. We are looking for short strategies across the board this afternoon; with EURUSD on the highs we see this as a highly probable retracement entry for a short led by USD strength. Any dollar strength plays will likely affect the price of the commodity space and so our Crude strategy follows this.