Cable expected to hit 1.60 by Wednesday after latest after surprising scotish independence polls

Market Review

In a normal week, the Non-Farm Payroll’s data will be the biggest event for traders. This was not the case last week as the ECB event where Mario Draghi cut interest rates in addition to announcing purchases of asset backed securities caught markets by surprise. However, details around the ABS policy will not be announced until October’s meeting. The big guns brought out by Draghi meant that payrolls data from the US the following day would carry less significance than what is normal. The release at 142k versus 226k was a surprise for many traders as through the summer has consistently posted readings above 200k and July 3 rd came close to breach the 300k mark. Many have been worried the strong data will lead to a more imminent rate hike, but this number has helped to reduce the early rate hike risk resulting in the S&P posting its higher ever close on Friday although over all price action was contained within the ranges of the last couple of weeks. The Nasdaq strategy worked out well on Friday, though US10Y and crude oil was stopped out. In the currency space Sterling and the Euro devalued aggressively due to the Scottish referendum vote risk and the ECB’s policy action. Both pairs saw downside of over 200 pips.

Today's Fundamental View

The start of the week has been interesting as cable opened with a large gap as further polls over the weekend has indicated that more Scottish people than previously thought are going to vote for a split up with England. This comes only a week after the previous poll which shocked traders and led to moves out of the sterling. At the current rate we will expect cable to hit the 1.60 handle by Tuesday or Wednesday at latest. Crude oil has also been on the back foot this morning and seen some continued downside as the ceasefire agreement in Ukraine is barely holding on as shots have been fired from both sides. Officially there is a truce, unofficially it is hard to call it due to the shelling that continues. As Friday’s number indicated a US rate hike will not be brought forward, we can see bonds today continuing higher, and assuming stocks have no intentions of moving lower despite the geo-political risks we believe it may focus on the accommodative monetary policy. There is no data of importance expected from the US, and as with most post-NFP Friday’s the movement is likely to be contained within tight ranges, with the exception of cable and crude. On potential mover on company specific news may be Nasdaq should there be any leaks around the iPhone 6 which is to be revealed on Apple’s annual conference tomorrow. We remain cautiously positive on risk, with long in the equities. The EURUSD and T-notes strategies are not converging today, as we go for the accommodative argument in t-notes and USD strength on the back of no shock to the system on Friday. Crude is difficult as we believe the deal will be broken, although the direction has been down and international pressure may mean it will officially be in place for longer than the actual developments on the battlefield.

Alternative View

Headline data worse than expected may lead to risk off and equities moving lower. Any geo-political risk should be carefully analysed.