S&P 500 (Mar 13) INTRADAY
Review Yesterday was President’s Day bank holiday in the US and so the E-mini S&P had a shortened session. As expected the market was unmoved all day and was stuck in a 3 point range between 1519 and 1516.
Strategy This morning has seen the German ZEW economic sentiment data surge above expectations to post a new 2.5 year high and in so doing adding weight to the belief that the start of 2013 will seen the German economy snap back to growth after a – 0.6% contraction in Q4 2012. There was also a strong Spanish T-Bill auction demonstrating that the recent increase in appetite for peripheral debt still seems to be healthy. The E-mini S&P has been in a sideways range for the last six sessions with 1522 being the top of the range and approximately 1511 being the bottom. To a certain extend the market is in limbo here until we get the next major macro development which looks likely to be the Italian election this weekend. Berlusconi has been making some comments this morning which just highlight the necessity for Italian voters to put Berlusconi’s Italy behind them in the past and move forwards with a Pro EU centre-left coalition. For now the markets seem happy to price in this scenario and hence why stocks remain at very elevated levels. For this afternoon the data calendar is again fairly light and so we anticipate that the market will remain in mildly bullish mood. As I type we have a problem in terms of the strategy set up as the index sits just below the top of the six day range. A long entry at the bottom of the range seems unlikely to be filled but equally a long entry mid-range is not necessarily a strong technical play. Short the top of the range would therefore seem the obvious call but given the strong ZEW reading this morning this seems to be going against the fundamental backdrop. Therefore, we will go with a higher risk entry at S1 despite this being mid-range and will operate with a tight stop.
Alternative Scenario Eurozone Headline risk may trigger a risk off move and take the S&P back to 1511.
EUR/USD (Mar 13) INTRADAY
Review Yesterday was President’s Day bank holiday in the US and so EURUSD very quiet and uneventful session. As expected the market was unmoved all day and was stuck in a 50 pip range which was within the range seen during Friday’s session.
Strategy We have had positive macro data from the Eurozone this morning with the German ZEW economic sentiment survey hitting a new 2.5 year high and the Spanish T-Bill auction showing continued strong appetite for peripheral debt. The Euro topped out in a spike higher immediately following the ZEW data but has since then been surprisingly subdued. The currency pair drifted all the way back to retest the earlier lows despite the seemingly positive fundamental backdrop. Berlusconi has been on the wires saying he is a realist about potential Euro breakup and perhaps this has been enough to lead investors to favour caution ahead of this weekend’s important Italian election. EURUSD has been in a sideways range for the last three sessions with some long term support levels for now halting a two week sell off. The December high at 1.3320 as well as the upward trend line that has been in place since the November 2012 lows are propping up the single currency. We believe the Italian election will see the pro EU Centre-Left coalition winning and this should reassure investors and allow the Euro to recover some of the recent currency war induced weakness in the short term. For today we expect the Euro to recover from the bottom of the range and drift back to test the earlier highs and so we have a neutral long strategy.
Alternative Scenario Continued Euro weakness may drive a break below the 1.33.
US 10Y T-Note (Mar 13) INTRADAY
Review Unexpectedly the market was ranging yesterday as the US were on holiday, and there were no real trading opportunities considering the risk reward ratio one would be looking at. The most noteworthy news was from Europe when Nowotny stated the euro was trading within normal ranges and that talks of currency wars were unjustified. There was no strategy yesterday due to the Presidents Day in the US.
Strategy The US10Y has been moving in to a pennant, and yesterday hit the top line that has been in place since the February 7th. The downside was initiated Wednesday last week, and we will break out at some point during this session. Due to decent news this morning and the persistence of politicians that there is no currency war (though we know better) we believe the price of US debt may fall as a result of mild risk-on in the markets which lowers the demand for safe haven assets. There is not much news of note this afternoon so we will be looking out for potential comments from France's President Hollande, which at this point in time we believe will perhaps be negative given his recent track record. The strategy is short from the key resistance area this morning, and first target at the pivot level.
Alternative Scenario Should Hollande impact markets it is likely that we see a rise in the price of safe assets and we will target last weeks high.
Crude Oil (Apr 13) INTRADAY
Review Crude oil was in a ranging market yesterday as the US was enjoying their Presidents Day public holiday . The range was rather tight and there was no news of note, perhaps with the exception of ECB's Nowotny stating that the euro exchange rate is within normal ranges, which did see some of the most dramatic movement all day.
Strategy If possible, crude has been trading in an even narrower range this morning despite great ZEW Economic Sentiment numbers out of Germany, posting the best number for over two years - the commodity has not responded positively yet and is lagging behind other risk assets such as equities, with the Dax testing last week’s high - though we believe that at some point through the session today the risk-on sentiment will take crude higher and breach yesterday's high. There is no massive data this afternoon, with NAHB housing being the only one perhaps worth noting. One negative note is that the European car sales are at the lowest of the last two decades - perfectly illustrating that the peripheral Europe is still struggling. The numbers are lagging though, and the latest efforts and progress has not been taken in to consideration, and at the same time it is not entirely unexpected that car sales are down. Today's strategy is long from the low of the day, with a relatively tight stop at the double bottom made earlier in the month for the April Crude contract at $95.50.
Alternative Due to the low volume we see there may be spikes in either direction, and as Hollande is expected to make an appearance on the wires today this may well affect the markets adversely.