Cable on a 6-year high strong UK construction numbers

Market Review

The S&P yesterday had another interesting move up to make yet another all time high, which now currently stands at 1971.75. The S&P and US10Y saw a nice negative correlation during the session which we have not really witnessed for some time, as traders have been caught between the bid tone in the bund on the back of potential quantitative easing from Mario Draghi and the European Central Bank, and quantitative tightening from Janet Yellen and the Federal Reserve. With this in mind, the bund and treasuries were negatively correlated through the session, though the bund was unable break above the high from last week. The crude oil strategy was short yesterday as we believed the supply worries were somewhat fading, and although the entry was not obtained we did see a sharp move lower of about 140 ticks. No entries were obtained. 

Today's Fundamental View

This morning have seen construction numbers from the UK posting the best since February and cable has further strengthened and made a new 6 year high. Currently it remains firmly above the ‘05 low and the ‘09 high. We remain uncertain on the future value of this currency pair as both the US and the UK are about to tighten policy the next 12 months. The S&P has traded in a range this morning together with its European counterparts, in particular the Dax. The Final GDP numbers out of Europe posted in line with expectations of 0.2% and did not move the markets away from the levels trading before the release. Crude oil has continued its sell off and is close to make a new low for the week. The move comes on the back of positive news from Libya where a rebel spokesperson stated that the country’s largest oil port, Es Sider, is open for export of the commodity. A German bund auction this morning posted an increase in demand and seen lower yield than previous. This comes in line with our view as the policy of the ECB has been easing and they remain open to quantitative easing. For this reason we saw a pop higher and another test of last weeks high, which was breached for a few minutes after the release. Today’s most important data release is the ADP Non-Farm Payrolls which can be a good indicator for Thursday's main release. For this reason we may see some decent volatility on the back of it, and in line with decent data of late we believe this will beat on the headline. The unemployment claims have been steady, and we do not believe it will be a shocking number to either side. The DOE Crude Oil inventories will be released at 1530BST. Last nights headline API number was higher than the market consensus would have led us to believe, and for this reason combined with the lowered supply-risk we see the price continuing lower until there is any increased disturbance in the Middle East with the recent events in mind. We remain bullish on equities and the USD, and we expect to see a continued sell of in treasuries. 

Alternative View

Hawkish monetary comment speakers from the Eurozone may adversely affect our strategies.