Little sell of in cable only notable move in a quiet session

Market Review

So it turns out trading at 16.6 times projected earnings ahead of yet another earnings season does not make for a stable market. The S&P continued to stall during yesterday’s session as investors took profit ahead of the expected earnings of Alcoa, which last night unofficially marked the start Q2 result publishing by beating estimates of both revenue and earnings per share. Stock indices rebounded ahead of the release though the futures have not moved overnight and throughout the morning's trading the range has been very tight. The same reaction has been witnessed across other assets. The short crude oil strategy yesterday worked well as a bounce just after cash open helped the black gold up to the entry area before sharply selling off to the second target. The story was different for the S&P which followed the Nasdaq index in its sell off, and was hence forth stopped out. The sell off in the technology index was largely triggered by profit taking, but exaggerated by the lack of technical levels and was in a free fall from the low of 2nd July to the high of June 30th where there were no support of note. 

Today's Fundamental View

The morning has for the most part been ranging across the markets we analyse, with the exception of a slight sell of in cable which may be attributed to sterling weakness which finally is flowing more through the currency pair. As with the NFP we noticed cable was relatively immune to US news to a certain extent and have tended to move more on the back of the UK economy rather than the US and the UK. With the earnings season coming up we feel it will be interesting to follow this correlation. The data calendar this afternoon is relatively empty – with only crude oil inventories from the Department of Energy being reported. Last night's API number was relatively similar to what market consensus is for today’s number and we may not see too much movement on the back of it unless any of the components come in far above or below expectations, though these were muted in last night's number. The S&P should be an interesting one to follow due to yesterday’s sell off, and whether or not there will be continued profit taking. With a 19.47 price to earnings ratio and a dividend yield of a mere 1.9%. For reference, both of these are way above the longer term average and will at some point need to be paired, either through dividend increases or share price pull back. For bonds it will be interesting to see if the move higher can continue, but this is unlikely should the S&P see a push back up towards the all time highs. Overnight Israel have bombed several targets in Gaza, and people are currently speculating an escalation of the situation. Should this happen it will just add to the unrest in the region, and as there are already large scale conflicts ongoing in oil producing nations which have been discounted we will need to see evidence of supply disruptions before positioning ourselves to fluctuations in the price of oil. Today’s strategy remains bullish on equities, while we will be short all other strategy assets. 
 

Alternative View

Hawkish monetary policy comments may adversely affect today’s strategy.