EUROSTOXX 50 (Sept 12) INTRADAY
Review As we expected, yesterday’s session turned out to be relatively quiet for the Eurostoxx, with the index remaining range-bound between 2,237 and 2,208 throughout the day. Trading volumes were thin following an eventful and busy week for most markets and the Eurostoxx posted a doji on the day. Our yesterday’s entry short at 2,246 was not reached.
Strategy Following the classic post-NFP Monday, we expect a gradual pick up in volumes and trading momentum throughout the week on assumption that European developments, US data and FOMC minutes, and Chinese data will keep the markets entertained. Data out of China will be of high importance, with Q2 GDP, Industrial Production and Retail sales all due for release on Friday morning. Overnight data showed that Chinese Exports and Imports both fell in the month of June. Imports receded from 12.7 to 6.3 and Exports were 11.3 vs. prev. 15.3, which contributed to the country achieving the largest trade surplus in three years. In today’s session we will be looking out for Industrial Production data our of France and Italy at 7:45AM BST and 9AM, respectively. The main data release for the session ahead for the equity space will be the IDB/TIPP Economic Optimism out of the US at 3PM. Given the cautious start to the week in terms of risk appetite and continued disappointing data from China, we prefer to position ourselves with an entry short at R1 for today’s session.
Alternative Scenario Positive comments from the Ecofin press conference at 12PM might prompt the Eurostoxx to test last Thursday’s low.
EUR/USD Spot INTRADAY
Review The EUR/USD consolidated some of last week’s losses in yesterday’s quiet trade and finished the day with a modest gain of 0.4%, with the upside being capped by the 1.23 handle. Our yesterday’s entry short at 1.2316 worked well, providing two trading opportunities during the European morning. Our first profit target at 1.2289 was attained in both cases.
Strategy Weaker Chinese Exports and Imports data weighed on the EUR/USD in the overnight trade, with the currency pair currently stabilising around the 1.23 handle. Besides Chinese macroeconomic data, the main news overnight was that following the Eurogroup meeting, EU officials have moved for-ward on the issue of the Spanish banking sector bailout. Although the plan details a potential first disbursement of funds by the end of the current month, implementation risk remains heightened with regard to the conditionality attached to the EU aid programme. Spanish banks will be required to undergo additional stress tests that are aimed to pave the way to the reform of the banking sector and segregation of assets into a bad bank. The two negative and rather key points to take away from the meeting were that the disbursement of funds is planned to commence initially via the Spanish government (which will add to the country’s debt) and that the memorandum of understanding is expected to be signed by the end of July. Overall, we feel that these European developments are likely to weigh on risk assets and the EUR/USD in today’s session and we would therefore prefer to position ourselves with an entry short at yesterday’s high, looking for a range trade down to 1.2273.
Alternative Scenario European headline risk will be a major caveat to our bearish positioning.
BUND (Sept 12) INTRADAY
Review The Bund consolidated last week’s gains in the vicinity of the 144.00 handle in yesterday’s session, with upside momentum still supported by uncertainty over short– and medium-term European developments. Our yesterday’s entry long at 143.68 was not reached.
Strategy Following the long awaited progress on the Spanish bank bailout front, we are looking forward to the Eco-fin press conference which is scheduled for 12PM BST. Despite sounding positive on the issues discussed, critical details lacked in the statement, namely the mechanics of ESM’s role in the bailout. Taking into account that the launch of ESM which was originally scheduled for yesterday’s session is now postponed due to ratification proceedings, it may entail another delay before we get more clarity in the detail. On the ESM ratification side, the German Constitutional Court is expected to issue its ruling on the EU bailout mechanism today at 9AM BST - this is expected to proceed in favour of ESM launch. With the exception of Industrial and Manufacturing Production data out of France and Italy, the European economic calendar is relatively light for the session ahead and the markets might be driven to a large degree by headline developments and the situation with the Spanish 10-year yield, which was trading back above 7% in yesterday’s session. For today’s session we prefer to position ourselves with an entry long at S1 on the basis that the most recent developments out of the Eurogroup meeting are not sufficient to support risk appetite.
Alternative Scenario Given the limited amount of data on the calendar for today, we expect headline risk to be the main caveat to our bullish positioning in the Bund.
