Mild bullishness expected in oil and stocks

Fundamental View

Yesterday saw the reversal in oil help push equities higher; Asian bourses pushed higher overnight in tandem with US stocks as energy stocks regained some of the losses sustained earlier in the week. The FOMC minutes were released yesterday evening but yielded nothing of major interest, the most prominent development being that the shift to “patient” in the FOMC’s forward guidance does not mean that rate hike expectations should be accelerated. We also had commentary from Evans overnight, stating that it would be “a catastrophe” if the FOMC decided to raise interest rates in 2015. This is interesting as it comes a few weeks after the FOMC vote where we saw Narayana Kocherlakota as the solitary dissenter among the FOMC. Now that we are seeing Evans also offer a divisive argument, stocks took this as their cue to push higher again, with the S&P leading the charge in the wake of Evans’ initial comments. We have also had talk from Germany regarding the Greek Debt Crisis, offering the opportunity for talks after the snap election. In addition to the FOMC minutes yesterday we saw ADP employment print slightly higher than expected but with little reaction. Crude data posted very bullish numbers as expected but the reaction was harder to read due to bearish Gasoline and Distillate numbers. An initial choppy market reaction ensued making obtaining an entry very difficult. The T-note strategy was the only trade filled, obtaining targets later last night.

Today’s View

This morning we saw a mixed set of data releases from the Eurozone with retail sales, PPI and consumer confidence for November released at 10am. Retail sales posted higher with the YoY figure printing 1.5% vs the expected 0.2%, PPI printing lower than expected at -1.6% vs -1.4%. The December Consumer Confidence printed mixed, with lower prints on Industrial, Economic confidence but higher on Services. This had a negligible effect on the assets trading as the Euro weakness from Greek political risk continues and ECB QE. This afternoon we have the Bank of England Rate announcement at 12pm, expected unchanged. This is followed by the usual Initial Jobless and Continuing Claims numbers, expected at 290k for initial jobless and 2360k for the continuing. We are continuing to monitor this release and, although we saw one reading stray above the 300k mark in November, we expect the 300k ceiling to hold due to the continuing employment of Christmas temps into the post-Christmas sales. We maintain our view from yesterday, expecting mild bullishness in oil and stocks following this. We remain bullish on T-notes due to de-risking European exposure.

Alternative View

The direction of crude is again likely to be the lead indicator for US indices. Any change from yesterday’s brief move higher could trigger further downside.