S&P 500 (Sept 12) INTRADAY
Review The S&P strategy on Friday was not successful as the US cash open at 14.30BST triggered a much more bullish phase for stocks than we were anticipating. JP Morgan had delivered some good numbers when they released their earnings report but the stock did not initially rally strongly in premarket but the upside gathered some real momentum on the cash open dragging the whole financial sector higher along with it. Our entry short was at1339.50 as we had anticipated that the week long downward trend channel would provide good resistance here but the break out lead to a ten point extension with the S&P pushing higher for the whole session to close just shy of 1350. Our short entry level provided a perfect classic entry long opportunity once it was obvious the market would continue to drive higher.
Strategy This morning has seen some phenomenally quiet markets and we have been picking off both sides of the S&P’s tight range between 1349.50 and 1346.50. We are currently mid-range and awaiting firstly the Citigroup earnings report and then key US economic data. Citi have to measure up to JP Morgan’s strong numbers and this may be a tough ask. The US data is due at 13.30BST and we will be focusing on the Retail Sales numbers as well as the Empire State manufacturing index as the regional manufacturing numbers showed significant downside in June, in particular Philadelphia's number and we await an update on that on Thursday. We have a neutral stance with a downside bias as we expect the data and the Citi earnings to provide a slight disappointment.
Alternative Scenario Strong Citi numbers or good data will lead to a break above 1349.50 and a drive up to 1356.50.
Review The currency pair went massively bid Friday on the back of the Americans coming in to the markets at cash open and immediately started the buying of risk assets which took the EURUSD up almost 100 pips as JP Morgan released much better than anticipated quarterly results. Many traders had positioned themselves for a lower than expected outcome as the London Whale posted trading/hedging losses that now have accumulated to $4.4 billion. The neutral strategy short was stopped as the risk on sentiment was not anticipated.
Strategy The EURUSD has been the main mover of risk assets this morning as focus has been lying on Germany and Italy who still have yet to ratify the ESM, and ratings agency Moody's has been warning that it may downgrade countries affected by the ESM deal should there not be a ratification sooner rather than lat-er. Peripheral bond yield spreads has widened this morning - although we expect this not to be significant as Spain is holding a 10 year auction tomorrow. As they have not released their target they are less exposed to speculation on the amount sold and it will be more likely to be a successful auction. Also, with the developments surrounding the ESM, we expect them to sell of with at least a small beat from previous. As pressure is mounting on French President Hollande, the government has officially announced plans to bail out its car industry in a popularistic move to save face after he won the election in front of previous President Sarkozy. Data this morning from Europe has been positive, with a higher than expected Trade Balance and a CPI in line. US Retail sales (exp 0.1%) and Empire State Manufacturing (exp 3.9) should be a dominant factor this afternoon. The strategy is neutral short at the resistance from Friday morning and a stop at this mornings resistance.
Alternative Scenario Bad US data may lead to some Dollar weakness due to raised QE expectations with Bernanke due to speak tomorrow.
US 10Y T-Note (Sept 12) INTRADAY
Review Friday's session was one of overwhelming 'risk on' as the US cash market open encouraged buyers to enter at levels of good value across equity indices. The week's ranges were broken in many of the most widely traded assets and T-Notes unsurprisingly settled in minor negative territory. Our entry short at 134.250 was proven to be too prudent as Treasuries moved quickly lower to find support at 134.110, our first target and Tuesday's low. After reaching this target prices rebounded firmly back towards our entry point as buyers were attracted on the fundamental view of a lighter supply from the US treasury.
Strategy Thin volumes in summer trading conditions look set to remain this week and T-Notes traders should adjust their strategy accordingly. T-Notes came under pressure on Friday but still remain within easy reach of the record highs set this year with a bias on the trend towards higher prices. We look to enter long on today's pivot level, 134.180 with a stop at the low set on July 10th, 134.100. In the immediate term the sentiment that so buoyed Friday's market action seems lacking today and we expect Treasuries to remain firm. Looking ahead however we see crucial Spanish bond auctions on Thursday and German ZEW figures on Tuesday to give us more detail on whether Europe has indeed managed to turn the tanker of negative sentiment. From the US inflation figures on Tuesday and Bernanke's semi-annual testimony to take place on Tuesday and Wednesday which may offer some vital insight into the immediate monetary policy direction.
Alternative Scenario A continuation of Friday's positive sentiment should see T-Notes come under pressure breaking today's pivot.
Crude Oil (Aug 12) INTRADAY
Review Crude prices were grinding upwards on Friday as China released their quarterly GDP numbers which showed that the growth rate of their economy might not be slowing at the pace previously feared and the markets got a feeling of a relief even though its just a single indicator on the Chinese economy. Further to this, JP Morgan surprised with their quarterly earnings despite the massive trading loss by the London Whale. The neutral long strategy on Friday was heavily tested at NYMEX open but the entry held up and took us within 10 ticks of the second target.
Strategy This morning WTI has been in a decreasing range causing a wedge to develop. It has been an uncharacteristically quiet morning where there have been very little news of note for the commodity. Over the weekend the UAE initiated its long awaited export terminal at the Gulf of Oman as the oil pipeline from Saudi Arabia finished construction. The first cargo set sail this weekend and it is now easier to bypass the Strait of Hormouz, which should temper any reaction on the crude price should there be increased tension with Iran. Last week the US sent underwater drones to the straits in an effort to prevent Iran from closing the gateway. This week all eyes will be on Chairman Bernanke as he is set to give hints of further quantitative easing on Tuesday. At 1300BST Citigroup is set to release their quarterly earnings a release we believe will be disappointing for the markets somewhat as the markets went massively bid after better than expected results from banking giant JP Morgan on Friday. Today's strategy is short at the AM resistance and a stop at Friday's high.
Alternative Bullish US economic data may lead to a break of Friday’s high and a test of R1 at $87.95.