S&P 500 (Dec 12) INTRADAY
Review We were nine ticks off the perfect strategy yesterday—We had a short entry defined at 1359.25 but it was more aggressive entries deployed at R1 resistance nine ticks below here that caught the high of the session posted after the much better than expected US Consumer Confidence data. From there the market drifted back into the earlier range and then comments from Fed’s hawk Plosser, who downplayed the positive effects of QE3, send the index down through last week’s low and our second profit target at 1443.75. The sell off extended another 8 points with the market bottoming out at 1435 and closing down over 1% for the first big sell off since the end of July.
Strategy The impressive US Consumer Confidence number from yesterday has already been forgotten. Spanish risk is dominating proceedings today as a meeting between Germany, Finland and Holland yesterday resulted in what appears to be a slight back tracking from the exact plan of action for the Spanish bank bailout agreed back in June. Peripheral bond yields are again back on their familiar upward trajectory with Spanish 10yr yields breaking back above 6% as a there is still no sign of a Sovereign bailout request from Rajoy. Tomorrow Spain announce their new economic reform package and Friday they will reveal the results of their internal audit on the Spanish banking system that will determine how much bailout funding their banks need. In the meantime today there is only New Home Sales from the US to change things and this is not significant enough to override a generally negative sentiment and therefore we have a short strategy for this afternoon.
Alternative Scenario Positive headline from Spain may allow a push back up above key resistance at 1443.50.
EUR/USD Spot INTRADAY
Review Yesterday the market was initially bullish and the euro strengthened against the dollar in the mornings trading hours as Italian and Spanish bond auctions showed decent numbers, although not great. Despite the bid tone there were a lot of negative comments in the markets, with Greece stating they may need to roll over on debt, S&P releasing a dooming report on Swiss bond buying in Europe and Merkel reiterating no chance for Euro-bonds - among other comments. It was in other words difficult to be a bull yesterday, and our strategy was short. It was filled as we released the report and the market traded through it and almost stopped us, before it sold of in the afternoon to more or less hitting our first target.
Strategy Protests in Spain have been on the top of the headlines this morning as the population of the struggling European nation is tired of the extreme unemployment rate of 25%. The developments may well push Mariano Rajoy to ask for a bailout - although he reiterated that this only will happen if borrowing costs increase to an unsustainable level. Appropriately we are now again trading above 6%. Market dictates you Rajoy - ask for the bailout. We are all better off, at least in the short term. We believe the bailout is good for the market, and will perhaps bring more confidence in to the economy. The most important data release this afternoon is US New Home Sales - expected at 381k. We are looking forward to a decent number from the US, although if it disappointing we still remain that the market will ignore this due to ongoing QE. The strategy today is short from the low of the 25th.
Alternative Scenario A shift in sentiment, or a Spanish bailout, may lead to a bounce towards the 1.30 handle.
US 10Y T-Note (Dec 12) INTRADAY
Review Yesterday T-Notes strategy worked very well with our long entry level at 132.280 again working well as it did on Monday. Admittedly T-|Notes dipped below our entry following eh very positive Consumer Confidence numbers but out stop level remained intact and from there the session turned on its head with strong risk-off flows propelling safe haven T-Notes back up to and through the earlier highs with our second profit target at 133.090 perfectly capping the upside for the session. The rally was mainly triggered by comments from the hawkish Fed member Plosser who downplayed te4h positive effects of QE3.
Strategy This morning T-Notes have added to the gains seen in the latter part of yesterday’s session. Peripheral bond yields have risen with Spanish 10yr yields moving back above 6% and their spread with German debt back above 450bps. The Italian auction this morning was fine but the German Bund auction saw their second technically uncovered bund auction in a row with the Bundesbank having to retain 36% of the allotment. There is a whiff of Eurozone fear in the air this morning and this is leading to riskoff movement across the board. There are no important data releases scheduled for this afternoon other than US New Home Sales and therefore we expect the Peripheral bond yields to continue to dictate play and we expect safe haven TNotes to remain bid.
Alternative Scenario Bullish US data may push the market down through key support at 132.280 with a subsequent test of S1.
Crude Oil (Nov 12) INTRADAY
Review Yesterday crude prices initially went bid in a pullback from the downward trend seen over the previous eight sessions. As we did not buy in to this but rather took note of it, our entry level was chosen above the high of the day at the point of doing our analysis. Our short entry level worked well as the top of the range, before a great sell of started towards and through the low of yesterday. The Fed’s hawk, Plosser, made some derogatory comments towards QE3 which triggered the move and both our profit targets were obtained in a 200 tick trade.
Strategy Last night the American Petroleum Institute’s crude oil inventories were released and showed a build of 335k. Compared to the expected build in this afternoons Department of Energy numbers that are expected at 1.7M there should be some upside to crude late in the afternoon as the numbers are released at 1530BST. The macro situation is overall negative this morning as the Spanish 10 year yield again is above the 6% mark, and demonstrators have taken to the street amid the massive 25% unemployment in the southern European country. Talks of a Spexit is back on. The middle eastern tensions are still looming, but although there have been news from the region they are overall negligible as there has been no change to the status quo of the last few weeks. In the south China sea the story is much the same. For these reasons we are neutral short on crude oil today with an entry at last weeks low.
Alternative Should there be a big enough draw down in DOE numbers we are likely to see a move through towards the $92 handle.