DAX and ESTOXX rise as risk appetite returns

Fundamental View

Due to President’s Day in the US, yesterday’s session was quiet; the majority of products remained range-bound and traded with low volume. There were however, after the European close, comments from the Greek delegation of the Eurogroup meeting saying that the Eurogroup’s demands to complete the €172 rescue package was unacceptable. This caused Euro-weakness around 1650 GMT, leading to stocks selling off in a risk-off move. Bunds and T-notes moved a leg higher with the S&P 500 down 10 points after the release of the comments. It was exaggerated due to low liquidity, reacting with higher volatility. Talks finally broke down after Varoufakis objected to a statement which outlined an extension to the bailout and the fiscal policy changes attached to the programme. Varoufakis has since commented that Greece would be prepared to extend the programme should language change and the terms deemed satisfactory. This removed some of the risk tension in the currency space with the EURUSD paring some of its initial losses in the overnight session. The S&P however has remained firm in the face of large down-moves; this seems to be linked with the pullback in oil which now trades above the $53bbl handle. This has allowed the energy sector to recover slightly resulting in US bourses remaining less affected by Eurozone risk than their European counterparts.

Today’s View

This morning we saw several key pieces of data from the UK and Germany in the form of UK inflation figures and the German ZEW surveys. We saw the headline UK CPI come in at 0.3% YoY against the expected 0.4%. The monthly figure posted a reading of -0.9% against the expected -0.8%. The headline PPI however beat expectations on the YoY figure, leading to a weaker than expected inflation reading from the UK, the headline CPI reading a record low. The Germans posted their numbers with a monthly headline of 53.0 against the expected 55. This was contradictory to the large up-move we saw ahead of the release which, given the high rate of early data leaks, surprised many market participants. Since then the risk appetite has returned in European stocks and both the DAX and ESTOXX are trading at their daily highs. Ahead, the calendar is relatively light with only a pair of US data points of note. Firstly we will see Empire Manufacturing for the month of February expected at 8.5. We will also have the NAHB Housing Market Index expected at 58. The cleaner number will be seen in dollar which, if paired with comments from the Eurogroup discussions, could see amplified pushes in either direction. Weakness in the Empire State Manufacturing number is likely to be affected by the recent bad weather experienced in the North East states.