Sanctions hit Russian shares, rouble: US sanctions expected to include more restrictions on economy

Market Review

The market yesterday was undecided on how to process the phrase from Janet Yellen where she stated there may be an interest rate hike 6 months from the day they are done with their quantitative easing program, where the market strangely sold off aggressively without thinking. Amplify stated early on that #1 this is not news, and #2 she is giving a ball-park and we should not be putting false meaning to what she says – it would not pay off in the long run. Later we have seen in both the FT and BIoomberg where the time frames have been properly analysed with the Federal Reserve meeting schedule, showing that our estimate of earliest April rate hike is moved forward two months to June, meaning that if anything the analyst expectations should be correct, if not aggressive, meaning that the USD should in theory weaken rather than strengthen. For this reason it would be appropriate to expect a pull back, though we are bullish on the USD as there will be more demand for it the coming months as QE continues to be unwind as well as we are moving closer to the interest rate hike.

Today's Fundamental View

The market this morning has been quiet, and due to the nature of what is expected of data we do not believe there will be any meaningful movement in either direction, with the off chance of some FOMC speakers creating adverse market movement by giving clear dovish or hawkish indications. Crude oil this morning has this morning hit the double top from yesterday, where it has met some resistance, and as we are currently in a range we would not be surprised if it holds goes down to meet support at the pivot or low of today’s or yesterday’s session. Yesterday’s stress test of banks in the US showed that a number of banks were dangerously close to the minimum requirements of capital in an adverse economic scenario. Though most banks did pass the tests, there may be some embarrassing moments ahead as a few of the institutions may not be allowed to pay out the amount of dividends they wish as the capital outflow from the banks may lead them to fail the same scenarios stress tested for. In China, the government is considering an easing of capital requirements for real-estate developers… which is illogical if you consider the fact that they are possibly in real-estate bubble territory, combined with the fact that some of these developers are currently defaulting on their loans. There may be more capital available in the short term, but in the long run “the efficient use of capital” will mean the money will be spent on projects or paid to equity holders, which will only serve to enhance the bubble and lead to a bigger blow when it bursts. Today’s strategy will go with the trend in the S&P, long from the overnight low on Wednesday, classic short US10Y, short crude as we can not see a sustained upside without an escalation of the Ukrainian crisis, as well as a short in the EURUSD as sellers will continue to creep in the the dollar and we expect a downward trend to be painted the next few weeks. It is also quadruple witching today so please be aware of potential spikes in price action.

Alternative View

Dovish comments from monetary policy makers may adversely affect the markets.

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