Euro weakening on speculation over possible ECB stimulus

Market Review

After a fertile session on Wednesday with a relatively large sell off in equities high to low, markets had a break yesterday and traded within a range and finished the session around where it started 24 hours earlier. Events of note was continued speculations surrounding ECB action in regards to quantitative easing, though this somewhat took the back seat to US data and further suppositions around the sanctions against Russia for annexing Crimea. The Final US GDP q/q reading showed a slightly lower than expected number with a miss of 0.1%, though the biggest miss was the Pending Home Sales number which was posted almost a full percentage point lower than the analyst consensus. The biggest mover of the session was crude oil as the DoE numbers the day before had shown an eight consecutive week of decline in stocks held in Cushing, Oklahoma, on top of the uncertainty we already witness on the back of the geopolitical tensions in Eastern Europe. No strategy entries were obtained during yesterday’s session.

Today's Fundamental View

This morning inflation numbers would have surprised most investors as it showed another decline in several German regions as well as Spanish CPI turning negative on annualised basis for the first time since 2009. This has helped weaken the Euro across the board and we have seen a bid tone go through European equities as there has already been heavy speculation recently on whether the ECB will be allowed to stimulate the markets further and with a slow down in price movement. Inflation, which through history has become German economists kryptonite, may actually lead the Bundesbank to allow Mario Draghi some measures if it remains at current or lower levels. The international relations between the West and Russia is worsening as the former President of Ukraine Viktor Yanukovych has demanded a vote for all Ukrainan regions on their future loyalty, whether independent or loyal to Kiev or Moscow. As we have been discussing for weeks now, Vladimir Putin’s stated objective of not going further in to Ukraine unless, and take notes of this, there are grounds for it. By this means a vote, poor treatment of native Russians, or anything you may think of that would give the Russians legal legs to walk in and take over further parts of Ukraine. Our best guess is that some regions will now hold referendums and Russian troops will before the vote takes place make efforts to move further in to the region while Obama is securing his legacy as the modern day Neville Chamberlain. While the outcome is unlikely to be war between the west and the east – we see further upside in crude in the weeks to come thanks to Vladimir. Today’s Personal Spending number is likely to be decent as the consumer sentiment number posted earlier this week posted a much better than expected number. The strategy today is short S&P and EURUSD, while a long strategy will be in place for US10Y and crude.

Alternative View

Dovish comments from monetary policy makers may adversely affect the markets, as will any developments in Ukraine.