6th May 2011
Market Overview
Focus on Yesterday’s Risk-off trade

Yesterday we saw a huge liquidation of longs across the board in commodities, while the dollar strengthened and equities also saw a sell off. We have seen a continuation in some of these moves this morning and Non Farm Payroll release later will be keenly eyed.

Thoughts from the trading floor

So yesterday was a huge day across most of the major asset classes, but the biggest moves were felt in the commodity market. WTI Crude Light Oil futures dropped as much as $11 a barrel at one point; Gold had it’s biggest down day in 2011 and silver continued it’s steep decline after CME hiked margin requirements for the fourth time in eight sessions. Silver has now dropped over 30% in the last week alone. With the dollar strengthening across all major currencies the biggest move was seen against the Euro - a move from 1.4900 to around 1.4500 seen in the last two days. The moves we are seeing are some major risk-off trades and we have to wonder whether a bigger move is at play here. In context, equity markets managed to hold up relatively well in the madness. Though the S&P500 futures were in free fall at one point last night, falling 18 handles in just half an hour, they managed to recover half that move going into the close.

The NFP release later today could be key for the markets going forward. With risk trades firmly off the agenda currently, a weaker reader reading, especially if significantly weaker could see another sell off across the board. The numbers don’t look good either. Yesterday’s weekly initial claims number in the US showed the worst reading since August 2010. That figure does not fall in this months NFP release but the overall trend over the last month has been up in initial claims. Most data points over the last two weeks have been relatively poor out of the US and with some believing that QE2 will not be extended beyond the June expiry, this could be the start of a broader sell off in the markets that have seen the biggest gains since March 2009 - equities, commodities and currencies against the dollar.

Some of the closing levels could also give indication to some of the market moves. Crude Light Oil has dropped another $5 a barrel this morning, with lows posted at $94.63 currently. There will need to be an impressive bounce this afternoon if the negative sentiment is to be removed from the market. At the moment we are seeing large sell offs with little in the way of buyers anywhere. With such a steep sell off over the last week we may see some covering going into the weekend but this remains to be seen. The FTSE 100 futures has lagged the other major equity markets, owing mainly to the large number of financials and basic resources companies listed in the index - the markets most affected in the risk off trade this week. The S&P 500 and Dax futures though have remained relatively strong but the NFP release later will dominate the moves in these markets. Closing levels in relation to the strength or weakness of the number could be a key indicator for momentum going forward.

● Non Farm Payroll released at 13:30 BST
● Expected at 185k, Private Payrolls at 200k

Bull View
In Oil, the bulls will have to keep the June contract above $92.00 a barrel and look to build again from there. If the S&P 500 future can leave its low print of 1325.25 from yesterday in place, the bulls will look to take the market back towards the 1347.00-50.00 levels.

Bear View
The bears have well and truly taken control over the last two days, in commodities especially. A key for the Oil market would be a close below the $100.00 level but anything below $102.00 and they will remain in control. If we see a poor reading out of the NFP release later, we could see further big sell offs in equities and commodities. If they can take the S&P 500 future through yesterday’s lows with a meaningful break then 1298.00-1300.00 will be eyed next.

Futex View

We have been bullish Oil and equities for a long time now and saw significant new highs made at the beginning of last week. Since then though we have seen some major sell offs and we will look to see how this afternoon plays out after the NFP release. As mentioned before, the closing levels in some of the markets in relation to the NFP number could give us an indication of future moves.

1st April 2011
Macro overview

Focus on the Risk markets (Equities, commodities & USD) and Non-Farm Payrolls.

Today sees the release of the monthly US employment situation report. The build up to the number over the last two weeks has seen a steady move lower in the USD and the continuation of this trend may be pivotal on the release of this report. The headline Non-Farm payrolls number is expected at 190K, with the unemployment rate expected to remain steady at 8.9%.

Thoughts from the trading floor

Wednesday’s strong ADP number bodes well for the Non Farm Payrolls today, with last month’s ADP numbers correctly guessing the NFP number.

Risk markets have turned strong despite recent volatility. The continued weakness observed in the USD against most of its major high yielding currency pairs over the last 2 weeks has seen this tight relationship with equities return somewhat and so today’s reaction to the numbers may have a ‘tell’. The USD against low yielders should reflect recent developments of hawkish central banks. A good number should see the USD rally against them and a bad number sell-off. Last month, equities had an inverse relationship to the Euro currency after the kneejerk.

Interestingly last month, equities had a decent move lower (on the back of in line on the headline and a lower unemployment rate). A great deal of expectation had been built into the numbers at the time. However, the unemployment rate number seems to be driven by participants falling out of the labour force and thus the market may ignore it once the detailed breakdown of the report is out of the way.

We have started to see an interesting new dynamic emerge for the markets over the last 2 weeks. Increasingly hawkish FOMC voting members have started to cause broad based market reactions. There has been talk that the Fed may start to outline an exit strategy at the next FOMC meeting at the end of this month and it seems that any prospect of QE3 is quickly diminishing. Therefore a very strong number may be met with selling in equities after an initial move higher, and cause a sharp break down in bonds also. The inverse is may be true if the numbers are particularly weak.

Bull View

It is likely that the current trend higher in risk and lower in the USD will dominate markets. Perversely, a slightly weaker than expected NFP number may be required for risk bulls going into next week.

Bear View

The bears will see these moves over the last week as a potential sign markets are looking to turn and the NFP number may provide this catalyst. A weak close may signal a decent sell-off next week for equities regardless of a strong or weak number.

Futex View

We favour the bears. We see the markets primed for a short-term correction having rallied into the end of March on very thin volumes. Although we may need to wait until Monday for this to occur, especially if the numbers are particularly strong.

11th February 2011
Macro overview

Focus on the Peripheral markets (debt and equities).

Yesterday saw peripheral debt markets come under pressure during the morning session. Yields on the Portuguese 10yr paper moved briefly to Euro lifetime highs and peripheral spreads across the board moved in sympathy with these moves. As a result, peripheral equity markets also moved sharply lower.

Thoughts from the trading floor

Portuguese 10yr yields moved through the 7.5% level yesterday, which roiled peripheral markets as a whole. This was the highest level since the previous Euro lifetime highs made in November last year. During that time there was a lot of talk that Portugal would need to go to the EFSF for a bailout. However, as we have seen previously, the ECB was quick to intervene in the markets by buying peripheral debt in an attempt to prevent another round of panic liquidation; moving yields back to the 7.00% mark by the end of the day. It has become clear of late that perhaps the only real buyer of peripheral debt is the ECB, and this may serve to unnerve other genuine buyers. The market may now really start to feel that the ECB’s interventions are producing a clear disconnect to reality, which may ultimately render the ECB interventions futile.

In sympathy we have seen peripheral equity markets come under pressure. The Spanish Ibex, Greek ASE and the Euro Stoxx 50 have started to trade off their recent highs. However, we have yet to see the Euro vs. the Swiss Franc reflect these macro developments. Therefore, if we continue to see deterioration in peripheral debt, we are likely to see the peripheral stock indices and Euro/CHF come under real pressure. At this point we may see the end game play out as far as Portugal is concerned.

Bull View

Bulls will hope that the ECB interventions can stabilise the markets long enough so that the comprehensive EFSF extension programme, to be announced in March, can ‘save’ the markets. As far as risk markets are concerned, bulls will look at the recent pull back in the last 2 days as a buying opportunity.

Bear View

Bears will look for the end game as far as Portugal is concerned to begin. Any correction in global risk markets may be enough to re-catalyse the European debt crises.

Futex View

We favour the bears. We feel that the Eurozone debt crises will reach its logical conclusion - peripheries needing bailouts - during the course of this year. We should see the weakest links start to go by this quarter-end.

14^th January 2011

Macro-events overview

Developments in the Eurozone debt crises this week

The latter half of this week has seen euphoria enter the markets on the back of easing fears regarding the Eurozone debt crises. Peripheral debt yields have witnessed solid retracements from their recent highs and peripheral stock indices, such as the Spanish Ibex and the DJ EuroStoxx 50, have surged higher since dipping sharply lower on Monday.

Thoughts from the trading floor

There have been several macro news factors that have hit the markets this week to help stabilise the ongoing issues in the Eurozone:

1. On Monday evening the Japanese government released a statement which reassured investors that they are looking to invest in the European Financial Stability Facility (EFSF). This helped markets stabilise after sharp risk aversion trading seen on Monday morning. The previous week also saw China making several statements to this effect.
2. There has been talk emanating from the European Commission that steps are being taken to expand the EFSF, with the Core Eurozone countries being asked to increase their contributions. However, several leading German politicians have expressed concerns over this.
3. Wednesday saw Portugal successfully sell their debt to the markets, a very positive event for the peripheral markets. Spain also managed to successfully sell its debt yesterday.

These Factors have helped stabilise the markets this week. However, we are still far from reaching a logical conclusion to the debt crises. Almost certainly we will see peripheral markets under pressure again during this quarter. At that point, bulls will need to see China and Japan turn their rhetoric into action and come to the aid of the Europeans. However, such aid will likely be required to save Spain rather than Portugal as it seems as though the market has already entered an end game with regards to Portugal’s fate.

Bull View

The bulls will look for the markets to brush aside concerns over the next 2-3 months. With global support for the Eurozone likely, should the peripheral markets start to disintegrate again, bulls need a period of stability so that the politicians and governing bodies can work out a system for extra market support.

Bear View

The bears will remain wary of these measures being put in place to aid Europe. The fact that every time further support is provided to Europe more has to be done at some later stage reveals that the markets lack long-term confidence.

Futex View

We continue to favour the bears. We believe that the Eurozone crises will enter the start of the end-game at some point during the first half of this year.

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