Saudi Arabia's military action against Yemen pushes oil higher and equities lower

Yesterday’s market action

Yesterday saw the largest sell-off in US equities for some time. The S&P 500 future contract had its largest down day since January 28th, also meaning that this is the longest period of non- consecutive down days since 1994. The S&P was down -1.46% and the NASDAQ -2.37%, the largest single day loss since April 2014. Some data missed the expectations yesterday with Durables seen far below expectations. With missed deliveries from Boeing and no large orders on the horizon for Caterpillar it has not helped a stagnant market affected by a strong dollar. We saw commentary from Fed’s Evans yesterday who commented that there was “no compelling reason” to raise rates until Inflation is moving back towards the 2% target. A 2016 hike is apparently more prudent. There is as usual divergence between policy makers as Lockhart believes that it is quite likely that it will be June, July or September. We have also seen crude make new highs overnight given risk in Yemen becoming more prominent. With further action from Saudi Arabia promising 150,000 boots on the ground to combat the Houthi rebels. This is not a new conflict but recent escalations have brought it to the West’s attention. This has aided the oil push higher and also fuelled stocks to the downside in both Europe and the US.

Today’s View

Today we have seen the aforementioned continuation lower in global bourses. We saw moves lower in the Asian session and a continuation into the European markets. On the calendar this morning we saw a beat of expectations in UK Retail sales across the board. This assisted a push higher in GBPUSD but this was not sustained, with a few technical levels above providing a ceiling to the move to the upside. We had already moved higher since 6am on the back of a slightly weaker dollar but these gains have largely now been pared back with GBPUSD just below R1. Ahead this afternoon we have US Initial Jobless Claims, expected at 290k and below the 300k yard-stick. Continuing claims is also due around the same time, expected at 2400k. We then have Services and Composite PMIs Preliminary numbers for March. The Services number is expected at 57, with no estimates posted for the composite. We also have the Kansas City Fed. Manufacturing Activity at 500 GMT. Any actual re4adings outside the extremities of the range are likely to affect the dollar and T-notes the clearest.