UK and Eurozone data gets the markets moving

Market Review

There was a relatively quiet market environment during yesterday’s session. The data was mixed; Empire State Manufacturing beat on its headline to give a slight upward pressure in risk assets, though both Industrial Production and Capacity Utilisation were lower than the expected and previous number. What this meant overall for the market was a neutral stance where ultimately there was a nice range. In terms of crude oil this was where we witnessed the prevalent movement for the session as it was lifted from Friday’s low at 90.63 to hit a high at 93.03 in the evening. The move was a surprise to the market as Chinese data over the weekend disappointed with lower industrial production growth than expected as well as factory output growing at its slowest pace since 2008. The continued shelling from rebels in to Ukrainecontrolled areas may well be the reason for the jump in price. In terms of strategy entries crude oil was obtained and stopped, with no other entry being hit.

Today's Fundamental View

There has been data from both continental Europe as well as the UK this morning to get the markets moving. In the UK, CPI numbers were posted in line for the year on year, with producer price index lower and the housing price index higher than the market expectations. In terms of rate expectations the Bank of England’s favourite number in this collection would be the core CPI which excludes volatile items. This isolated number was higher than expected and will serve as an indication that the Bank of England may hike rates before the end of the calendar year should the number continue to rise next month. On the continent, the German ZEW Economic Sentiment posted a higher than expected number, while the European number missed the headline. Both were lower than the previous reading, which indicates a cooling sentiment overall which may overshadow the beat on the German number and lead to some downside in both the euro and European equities. This afternoon we are looking forward to some inflation numbers from the US; the Producer Price Index. Although not directly being what the Federal Reserve uses for their targets but it is released ahead of the CPI reading and may serve as a leading indicator to this number. For this reason today, and with the FOMC tomorrow, we believe there is a chance of an exaggerated move should we get to the edges of what is expected due to rate hike forecasts. With yesterdays reports of shelling by rebels and similar news this morning we believe the ceasefire at this point only exists on paper and that we will witness a gradual increase in military activity in the region over the next few days. With the current military exercise in western Ukraine with NATO it is unlikely there will be a large escalation until the US has removed its troops. Should there be an attack during this time we believe there is room for aerial support from NATO, similar to what we have seen in quite a few conflicts lately. The strategy today will be short equities and EURUSD while go long Crude and US10Y.

Alternative View

Any geo-political risk should be carefully analysed, with continued focus on Ukraine. The price of Apple may serve as a key indicator to index movement today.