Equities, bonds and EURUSD bid on a quiet data day

Market Review

Yesterday morning was rather busy in terms of data, as GDP readings from both France and Germany were released. Although both missed on the headline, the latter one showed a contracting economy with its first negative Preliminary GDP reading since February 2013. It was worth noting that the expectation for the release was negative at -0.1%, and the release at -0.2% perhaps should not have a massive impact as GDP numbers are backward looking by nature. The afternoon showed a jobless claims number only marginally higher than expected at 311k versus the consensus of 307k. Any number up to 320k should not have a massive impact as it shows a steady improvement in labour market conditions, and as the numbers are inherently volatile numbers in the 300k area should all be treated the same – its decent and takes away the uncertainty for sudden moves for the worse employment conditions in the States. No strategy entries were obtained yesterday. 

Today's Fundamental View

This morning has been of the more quiet sort data wise as there was no expected data from the euro-zone, as well as a French and Italian bank holiday. The movement has not been as muted as the data calendar should suggest, and equity indices have been bid in conjunction with bonds and the EURUSD. Although we may agree with the movement in the first two, the latter should see a sell off as the market is improving and with the potential of any stimulus should weaken the euro. There is therefore a temporary mispricing of the currency and we are expecting the bottom of the week to go out and we can target the 1.33 handle should US data be decent this afternoon. Of data this afternoon the calendar is relatively packed – with the arguably most important piece of data being the Producer Price Index which will be released at 13:30GMT, and will be an indication on whether or not inflation should be a concern for traders this week. The University of Michigan Consumer Sentiment survey will also be a main driver at the end of the data schedule, and depending on the previous data sets either create some volatility or purely stabilize the movement. We are positive on the data due to seasonality in the number. The situation in Ukraine is relatively unchanged, though the white Russian trucks are still heading for the border, and is currently at an undisclosed location. At Amplify the discussions on this being humanitarian help or hidden military help has divided the office opinions, where the head of trading believes more now than before the trucks contains humanitarian helps under the argument if Putin were to do something, he would already have done it. I remain more sceptical and look towards Crimea at what the outcome was in the peninsula. Putin plays a different game, and plays to win. Either way, when he pulls back he will do it under the pretext of saying “we saved the Russian speaking population” – much like Nikita Kruschev got himself out of the Cuban crisis saying “we saved Cuba”, although their mission was not necessarily successful and they were forced to retreat from Cuba. The banner of retreat is important for the Russians, and this may be the path we should lay ahead of Putin and show we have learned from history so that borders in europe are not yet again changed. Today’s strategy is long equities and short all else.

Alternative View

Monetary policy comments can adversely affect the markets. Please remain aware of all developments coming out of Ukraine, Russian and the Middle East and keep a conservative outlook with regards to risk. Over exposure in markets with such uncertainty is dangerous and should be avoided.