Safe haven debt well bid, greek stocks under pressure

Fundamental View

Yesterday saw a heavy session for the equity space as a trio of factors weighed on sentiment. Firstly Russia: The once again escalating Ukraine crisis has lead to EU comments that fresh sanctions are being prepared, this negative was added to when the S&P ratings agency downgraded Russian debt into junk status. Secondly, the US durable goods orders data came in a decent amount worse than expected. Thirdly, the US earnings from the likes of Procter & Gamble, Caterpillar, Microsoft all showed worse than expected results with the strength of the US dollar being a common theme in terms of the reasoning behind the disappointing numbers. This final point is of concern for the medium term and one risk for 2015 is how much will the recent 17% rally in the US Dollar dampen the US growth story. However, this downside bias through the US session was reversed somewhat after the close when Apple delivered the large corporate profit in history. I-Phone 6 sales were ‘off the scale’ and Apple once again becomes the darling of the tech sector.

Today’s View

This has seen some of the Apple rebound given back with a mild ‘risk-off’ theme. Safe haven debt has been well bid with the German Bund leading the way. Greek stocks are under heavy pressure with the banking sector leading the decline. The Greek banks are now down in excess of 35% for the week. The important observation about this is that there seems to be a bit of contagion risk creeping through with Italian, Spanish and Portuguese bond yields rising and German yields falling. There has been an absence of macro data this morning and this remains to be the case for the afternoon. Oil inventory data is due for release at 15.30pm GMT with the API data last night showing a record increase in crude stocks at over 12 million barrels. The main event of the day will be the release of the FOMC statement tonight. It will be interesting to see if the Fed make any dovish adjustments to their statement to factor in a declining inflation outlook and yesterday’s evidence that the strong dollar is beginning to squeeze corporate America. Ahead of tonight’s statement release we prefer a risk off theme with a short entry for the S&P and a long entry for T-Notes. We [prefer a negative dollar bias ahead of the Fed and so will be looking for a long entry on the EURUSD. We have a short bias for crude.

Alternative View

Greek contagion risk may feed through negatively on the Euro offsetting Dollar weakness ahead of the Fed.