Most assets caught in range with market lack of news

Market Review

Yesterday’s session some decent movement across the equity and currency space after what had been a subdued Monday as market participants felt the usual fatigue after a Non-Farm Friday session. The S&P was on the back foot for all of the US session as weak IBD/TIPP economic optimism data as well as heavy downside for Twitter as a result of the post IPO 6 month insider share holder ‘lock-down’ period expiring. This helped drag down other tech stocks such as Facebook and Netflix and overall resulted in the index shedding 0.6%. Earlier in the morning Europe released better than expected PMI data which lead the Euro higher and EURUSD breaking important resistance at athe1.39 handle which was the April high. The strategy entry on the SPX was stopped, US10Y ended scratch and the two others were not obtained, with crude oil ending the move down only 9 ticks from the entry before obtaining both the first and second targets.

Today's Fundamental View

During this morning most assets have been caught in a range as there has been a lack of news coming to the market. The most notable update at this point been the technically uncovered German Bobl auction, with a retention rate of 20%; underscoring the current lack of appetite for core Eurozone debt in favour of higher yielding peripheral equivalents. The European Central Bank is also currently torn between Berlin and the rest of Europe on whether or not to start easing measures in the form of bond buying or negative deposit rates, as well as a wide array of other measures, which may start with increasing liquidity in the Euro-zone by desterilize the bonds purchased under the Securities Market Program back in 2010. Should the ECB not go ahead with the stimulus there may be a bounce in interest rates, whilst going ahead with it means yields even closer to zero; and investors are suffering from this uncertainty. Meanwhile, Germany is still enjoying low rates on their debt. This afternoon will see Janet Yellen testify in front of Congress where we will see two opportunities for trade: the first when she initially will read from a script which is made available to the public immediately as she starts speaking. The second comes during the Q&A session, as these are not known in advance. We do not have a straight forward view on the Chairwoman this afternoon, but we remain interested in what her view is on the strong NFP number compared to the low Q1 GDP number. Looking back she has favoured weather effects as the reason for a low GDP number and with the hiring number being as high as it was in April the only real uncertainty is how she chooses to interpret the low participation rate number. We feel her main objective today will be to downplay rate hike fears and therefore we expect an overall dovish event. Today’s strategies will for this reason be bullish all assets but the US10Y, which we believe should get hit by any comments of rate hike. Libyan news on cancelling a scheduled handover of an oil port may lead to a bid tone in the crude oil.

Alternative View

Surprise comments from FOMC members ahead of today’s testimony may alter market sentiment.