S&P 500 (Sept 12) INTRADAY
Review Yesterday we had a neutral short strategy and initially our entry level did a good job of resistance for a short term trade but ultimately the stealth rally ground stocks up through our level and on up to our stop level which worked well as resistance to cap the upside for the session. US data for once showed better than expected numbers and this combined with a sprinkle of EU summit optimism allowed stocks to put in a positive session with the S&P managing to retrace all of Monday’s losses.
Strategy The EU summit is finally here. Headlines risk from Europe has dominated the session so far and will continue to do so. This morning a German Government source said that the EU summit would produce no details discussions and this along with some worse than expected German employment numbers lead to a high momentum sell off. However German Finance minister has just said that Berlin is willing to negotiate on Eurobonds and urged Eurozone members to use the EFSF to buy bonds. This has completely reversed the mood with the S&P retracing most of the earlier losses. Although these comments have now been watered down by the German Finance Ministry. It is still our view that the summit will lead to a decision on using bailout funds to buy peripheral debt and therefore we are keen to go with a long entry today although risks are extreme as EU summits have so often disappointed in the past.
Alternative Scenario No progress at the summit or negative headlines can lead to a sharp sell off as seen this morning.
Review The EU summit had a kick start yesterday as the President of France and the German Chancellor met for a dinner meeting to prepare their mutual stance - a meeting that culminated in nothing at the scheduled press conference. The currency pair was bearish pretty much the whole day, and with US Pending Home Sales posting a much better than expected number, however the Durable goods numbers were more mixed. The strategy was not filled as the entry was too risk averse, although the currency pair moved all the way down to our ambitious second target.
Strategy A sharp sell off this morning as a German official stated the summit today and the following days will not mount to anything but making "progress" has been somewhat retraced after the Wall Street Journal made a scoop this morning and quoted the German Finance minister Schäuble saying that Germany was willing to accept Euro-bonds and effectively opening the door Angela Merkel closed quite a long time ago and reiterated as recent as yesterday that there was no chance for this happening. Further to this happening the peripheral bond yield spreads have tightened somewhat since the comments. Schäuble’s comment have since been watered down by the Finacne ministry but we still believe that overall the summit can produce something meaningful by way of allowing the EFSF to buy peripheral debt. This afternoon there is a lot of data out of the US, with Initial Jobless Claims (exp 385k) and GDP (exp 1.9%). We have a long strategy for today which is high risk as we expect a lot of volatility from Eurozone headlines as the EU summit gets underway.
Alternative Scenario Negative headlines from Europe can trigger heavy downside. And a break below 1.24.
US 10Y T-Note (Sept 12) INTRADAY
Review For both Tuesday and Wednesday we have now seen very light action in the Treasury market as T-Notes have remained in a tight sideways range in anticipation of any kind of firm resolution from the Eurozone ministers who are meeting today and tomorrow. Already we have had the German finance minsters more positive comments towards debt sharing retracted and the Irish PM has come on the wires saying they will insist on equal treatment should Spain get preferential terms.
Strategy The circus is set to continue and we have front row seats. However, whereas in previous acts the clowns have finished with custard pie on their face now the consequences are more in line with the lions den. We move our entry to yesterday's low of 133.085 on the assumption that no 'giant leap' forward will be made today. Most likely the meeting will drag on through Saturday and Sunday before a short term 'win' is announced on Monday. The last short term win announced was Spain's Euro100bn banking bailout where the market euphoria lasted all of 45 minutes. Should the clowns try the same trick again on Monday their fate may well be sealed with even more force and speed.
Alternative Scenario We may well see positive language (without details) today in a bid to support risk, weighing on T-Notes to break the 133 handle.
Crude Oil (Aug 12) INTRADAY
Review As yesterday's overnight market was ranging and no significant news were boiling, it was a day where we were looking for a short strategy with an entry a few ticks above the range - preparing for the initial movement the DOE crude numbers would create. The commodity started a small trend upwards which kept on to the inventory numbers were released and this capped the upside that was created after Cyprus' rescue package was approved and the better than expected Pending Home Sales. Amplify's short strategy was stopped, but the short entry level created a good opportunity for a ‘classic’ long.
Strategy The EU summit that has been on the wires for the last day's is finally here and was kick started yesterday as the German Chancellor and the French President met for a dinner date which culminated into nothing at a scheduled press conference at 18:30BST. This morning the markets have fallen through the floor as a German government source said that "the summit will produce no detailed decisions but seeks to accomplish important work on ambitious roadmap" - a statement that has lead to a sharp sell off. We believe there has been an over reaction in the markets as the hopes, not the actual expectations, was high. German unemployment rate this morning showed their economy is slowing down which is a further negative for the markets. Data of note this afternoon of note is US Initial Jobless Claims and US GDP. At the end of writing this report the German finance minister made the most significant statement of the session which showed that Germany is open for Eurobonds. On this statement alone we are bullish for the session and are awaiting further comments on the topic and what conditionality there will be on this towards the proud European countries.
Alternative Any comments that contradicts the Eurobonds comment can lead to a sharp fall.