18th April 2011

Equity Overview

It was a quiet week last week for Equities, with the market posting small losses. The market recovered from lows made early on Thursday afternoon and was mainly range bound over the week.

Thoughts from the trading floor

The market was predominantly range bound last week with little in the way of news providing any sentiment or direction. The S&P 500 future made a high on the week on Monday at 1330.25 before coming under some small selling pressure during the week. Lows were made on early on Thursday afternoon at 1298.25 before the market made a strong bounce going into the close. This low was just two full ticks through the low of 1300.25 made on March 29th and will provide short term support for the June contract. If this area holds the market will look to get back up towards the highs of 1336.50 but should we see a further break lower then the bears will target the 1280-84.50 area. How the market reacts around here will be key.

European equities were a similar picture with the German Dax future making two attempts to break lower on Tuesday and Thursday before bouncing off 7100-15. This will act as short term support before bigger levels at 7070-80 will come into play. The June contract has a daily trend line coming in from the high made on 7th April, currently at 7205. The market will need to get through here and break April’s highs of 7262 if it is to keep it’s bullish momentum.

On Monday morning we saw news break from a senior IMF source that Greece had asked for a change in the terms of its loans and restructuring some of it’s debt. This was soon denied by the country. There has been talk in the market of this happening for some time now but markets sold off initially on the news, with the Dax future dropping 60 points and the FTSE 100 future 40. The problems of the weaker Eurozone countries are still far from over and the markets are still prone to big moves off of this bad news, and provides the biggest danger to a continued recovery in the markets and the world economy as a whole.

Important events this week.

Tuesday: US Housing Starts
Wednesday: UK BOE Minutes released, US Existing Home Sales
Thursday: UK retail Sales, US Initial Claims and Philly Fed
Friday: World Market Holiday

Bull View

In the S&P 500 future, after failing to significantly break support at 1300.25 the bulls will target the top of last weeks range at 1330 before having another go at the highs of the year at 1336.50.

Bear View

The bears will look to take advantage of any further bad news coming out of the Eurozone economy and take the market back through short term support at 1300.25 (S&P 500) and 7110-15 (Dax). Breaks below here will pave the way for further selling.

Futex View

We are still bullish equities in general in the long term and expect the yearly highs to be tested and broken in the coming months. With volumes low and the Easter market holiday at the end of the week though, we expect the market to be relatively quiet and will look to trade the range of the S&P 500 between 1300 and 1320.

11th April 2011
Equity Overview

Focus on FTSE 100 Futures
Equities posted another week of gains last week as the recovery from the Japanese disaster stretched to it’s third week. The FTSE 100 Future is now trading within 60 ticks of the high’s made in February.

Thoughts from the trading floor
The FTSE June contract closed higher again on the week, closing just below the 6000 handle at 5997. It was a relatively quiet news week for the markets, with the main focus on Trichet’s ECB press conference and the eventual acceptance from Portugal to ask the EU for financial aid. The Portuguese news have very little effect on the markets, with many participants believing for some time now that this was an obvious outcome, despite claims to the contrary for many weeks from the country’s politicians. With Trichet producing little in the way of surprise in his press conference, the markets were mainly range bound for the week.

Technically the market remains bullish with the yearly highs of 6087 within 50 ticks of early morning highs on Monday. There is minor resistance at 6040-50 before we reach this highs but if both can be taken out, then the market will look to 6150 as a further target. There is cause for concern however in that the market has topped out in the 6015-25 range for three straight days without a further drive higher. If the market fails again here on Monday we may start to see some week longs flushed out and see some profit taking. Short term support lies at 5945 and then at 5918, but major support is seen at 5820-50. As long as the market can remain above these levels the bulls are in control.

UK CPI is out on Tuesday along with the German ZEW which may give the market some direction heading into US data out later in the week. We also have option expiries on Friday at 10:15am BST, and so we may some moves towards one of the bigger handles (6000, 6100) as we approach, with volatility expected in the final few minutes.

Important events this week.

● Tuesday: UK CPI, German ZEW
● Wednesday: EU Industrial Production, US retail Sales
● Thursday: US Initial Claims and PPI
● Friday: US CPI, New York Manufacturing, Industrial production and the Michigan Survey

Bull View
After another week of gains the bulls will look to push higher again and take out the years highs, paving way for moves to 6150 and beyond. They must keep the market above the 5820-50 range.

Bear View
Bears will look to defend the 6015-25 range that saw the market top three times last week and hope to take out week longs on prolonged selling should another failure at these levels occur. As previously mentioned, the 5820-50 should be the first target.

Futex View

We are still bullish equities in the long term and expect the highs of the FTSE to be tested and broken in the coming months. However, due to the range bound nature of last week we favour buying retracements down to 5950 and major support until we see the market make a meaningful move through the recent highs.

4th April 2011
Equity Index
Overview
Another strong week from equities last week with all the major indices closing markedly higher than where they opened. It was a quiet week for news until Friday’s jobs report and manufacturing data which both showed slight beats on analyst expectations.

Thoughts from the trading floor
The S&P pushed higher again on the week and closed just above resistance at 1327.00 having traded as high as 1333.75 in Friday’s session. The index still shows signs of impressive strength and the yearly highs are now firmly within sight at 1343.00. Short term support is seen at 1310-15.00. The Dax in Germany was again the strongest of the major indices, with Friday’s rampant day taking it through the 7200 handle. The Dax is trading close to short term resistance at 7220, but major levels are not seen until 7355. Major support is seen down at 7060. The FTSE 100 futures in the UK are now within 100 ticks of the yearly high but must first push through resistance seen at 6030-40.

The markets seem to have well and truly shrugged off the bad news from Japan and have taken little notice of the ongoing struggles of some of the smaller Eurozone economies as well as the conflicts in some middle eastern countries. Portugal have continued to claim an unwillingness to seek aid from the EU, but a bailout of some sort seems inevitable in the coming weeks. Should this happen, it will be interesting to see if the markets turn their focus to Spain.

There is little in the way of major economic releases this week, so markets will look to the FOMC minutes released on Tuesday, and the ECB interest rate announcement on Thursday. Traders will look to see whether Trichet and the council will press ahead with their intended rate hike and look for further signals of ECB thinking in the press conference that follows.

Important events this week.

● Monday: UK PMI Construction
● Tuesday: Eurozone Services PMI’s, US ISM-Non-Manufacturing, FOMC minutes from prior meeting.
● Wednesday: UK Industrial Production, German Factory Orders
● Thursday: US Initial Claims, UK/ECB/Japan Interest rate decisions
● Friday: US Wholesale Inventories

Bull View
After another strong week, the S&P 500 has little in the way before the yearly highs can be tested. With little data to be released and volumes low, the equities may continue their slow grind up.

Bear View
Bears will look to defend double tops on the year in both the Dow Jones Industrial Average and the S&P 500 and look for and signals from the Fed about future, sooner than expected rate increases.

Futex View

Again the markets showed strength and we favour a move to at least test the highs of the year in the S&P 500 and possibly even the FTSE 100. It will be interesting to see how the markets react from here and whether any high volume comes into the markets around these levels.

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.

28st March 2011
Equity Index
Overview
Equities across the board last week posted strong gains and continued their recovery from the sharp losses seen in the aftermath of the Japanese Earthquake and Tsunami. Despite negative downgrades on some of the Euro zone’s sovereign ratings and mixed news from the week’s economic releases, markets on both side of the pond showed their strongest weekly gains in months.

Thoughts from the trading floor
Technically, the S&P 500 future continues to show bullish signs with a continuation of the bounce seen off the lows made at 1241.25 at the beginning of last week. The contract closed the week at 1310.00, breaking through resistance seen at 1304.00 and is now trading back above levels seen before the shock of events in Japan. This has left a significant swing low and further resistance will now be eyed at 1327.00 and furthermore, the 2011 highs of 1342.00. Short-term support is seen at 1280.00. The Dax future had a particularly strong bounce last week. After an impressive first hour on Monday the Dax retested the week’s opening lows on Wednesday but failed to break. This paved the way for further gains with the contract closing two previous daily gaps at 6872.5 and 6995.0. Although a strong bounce, the Dax is still some way short of the yearly highs at 7470.0 and resistance is eyed at 7050.0 and 7100-10.00. We would have to see a move below 6730.00 before the bears were back in control.

Although the charts have painted a strong picture this past week, negative news continues to provide the markets with reasons to be cautious. The markets have shrugged off the downgrades of both Spain and Portugal’s government bonds in the past couple of weeks, but after Portuguese politicians voted against the austerity measures proposed by the government, the country may finally have to seek a bailout from the EU.

Over the weekend there have been more violent clashes in the Middle East and further political unrest may cause traders to look to book profits on recent longs. The situation with Japan’s nuclear plants also remains a danger. While the markets have showed little worry recently over the situation, further radiation leaks must provide a cause for concern as we enter the third week since the Earthquake struck.

Important events this week

● Monday: Pending Home Sales
● Tuesday: UK GDP Final Q4, US Consumer Confidence
● Wednesday: ADP Jobs Report
● Thursday: US Chicago PMI, US Initial Claims, US Factory Orders
● Friday: US Non-Farm Payrolls, ISM Manufacturing

Bull View
After an impressive bounce following the Japanese Earthquake, the bulls are firmly back in control and will be confident of testing the 2011 highs of 1343.00 in the medium term.

Bear View
Bears will look for further negative news on the Eurozone economies as evidence of continued unsolved problems, along with clashes in the Middle East to try and regain some downward momentum that was reversed last week.

Futex View

We were bearish last week but despite a general negative news-driven week, the markets proved to be surprisingly resilient. Although in the longer term we expect the highs to be tested, we will look for some profit taking going into the month and quarter end, especially after the strong bounce witnessed in the last two weeks.

21^st March 2011

Equity Index

Overview

Last week equities stabilized after seeing sharp weakness on Tuesday and Wednesday. The German Dax Index, in particular, saw the heaviest losses when compared to equities on both sides of the pond.

Thoughts from the trading floor

From a technical perspective the S&P 500 future continues to look bullish in the short-term. The S&P future bounced rather smartly off the lows earlier last week at 1241.25 and is now trading around the 1289.00 handle this morning. A move through the 1298.00-1304.00 area would see the market regain a bullish chart posture, and mark the recent weakness down to 1241.25 as a significant swing low. This would then pave the way for a move back to the recent high prints for 2011 at 1342.50. For the Dax future there is a significant gap at 6872.5. If the market is to recover it must take this level out, otherwise it remains vulnerable to capitulations. If this level is taken, a further gain to the 6970.0-6996.0 area is favoured. The short-medium term outlook may be determined by price action around this level. This morning’s move higher needs the 6884.0 highs to remain intact. If this level is taken and the usual hourly close below here is achieved, we may see already nervous longs throw in the towel.

This week traders will continue to follow the developments from Japan. We have seen more positive headlines over the weekend that the nuclear plant issues have started to ease which has helped sentiment this morning. However, the issues remain an ongoing concern and any hint of a further deterioration in the status of the nuclear plants may result in market participants panicking out of recent longs.

Over the last week, we have seen a gradual escalation of social unrest in the Middle East. News that the UN will enforce a no-fly zone above Libya has helped energy markets recover from the panic liquidations seen last Tuesday. The situation in Bahrain and Saudi Arabia also remain a grave concern. This may prompt market participants to look to exit recent longs on rallies.

Important events this week

• Monday: US Existing Home Sales
• Tuesday: UK CPI, RPI.
• Wednesday: US New Home Sales.
• Thursday: US Durable Goods
• Friday: US GDP

Bull View

As long as the monetary stimulus is in place Bulls will remain confident of an ongoing medium-long term rally. Their next target in the S&P 500 is 1343.00.

Bear View

Bears will continue to look for further catalysts for a deeper correction and will be hoping the weakness of last week can follow through this week.

Futex View

We would back further weakness heading into the end of the month. The market has started to show signs of some short-term weakness and we would back further declines heading into quarter-end.

28^th February 2011

Equity Indices

Overview

Last week equities traded sharply lower as they looked to correct after strong monthly gains over the course of this year. The S&P cash made lows below the key 1300.00 handle. The market retraced a good chunk of the week’s losses on Friday, a follow through from the bounce seen on Thursday evening.

Thoughts from the trading floor

From a technical perspective the S&P 500 future continues to look bullish in the short-term. Support at 1291.50-92.50 is important and as long as the market can hold above here, a challenge of resistance at 1343.00 (recent high prints) remains on the cards. The market found a floor late last week below the daily trend line, which is at 1301.00 today. The market was unable to force a daily close below here, which should aid the cause for the bulls. The 1320.00-1322.00 remains the major stumbling block, in the short-term, for bulls. Another key failure around this level may result in an extended sell-off targeting a break and close below the daily trend line and thus a deeper correction. A move back above here in the next day or two should then target the recent highs.

This week traders will continue to follow the political developments in the Middle East. Recent days have seen an escalation of violence in Bahrain and Libya, which resulted in the Middle-Eastern indices suffering further losses yesterday to fresh 9-month lows. The overriding fear is that the unrest spreads to Saudi Arabia. In this scenario, equities would come under severe pressure whilst oil would spike significantly. Currently, this remains a tail risk; howeve,r market investors hate political instability and further tensions will cause headwinds.

Tomorrow is an important day for the markets as Fed’s Ben Bernanke makes his key semi-annual speech. In this event, Bernanke will outline the Fed’s strategy going forward. As ever, the outlook for the economy and the FOMC’s policy towards their Q.E. package will be the highlight. We have started to see a raft of voices from the Fed suggesting that some members have started to turn hawkish. However, Bernanke has maintained that the Fed’s mandate towards employment will need to be fulfilled before they head towards a sustained exit strategy. Dovish comments may be taken as a green light to buy equities and other risk assets. Notably, the USD has continued to show weakness, and dovish comments may thus result in further selling of the USD and buying of risk assets. Alternatively, a hawkish speech may result in another round of panic liquidation of risk assets and thus force a deeper correction in equities heading into the Non-Farm payrolls report on Friday.

Important events this week.

• Monday: Chicago PMI report (US)
• Tuesday: ISM manufacturing report (US), Bernanke’s key monetary policy report.
• Wednesday: ADP employment report (US)
• Thursday: ECB monetary policy announcement.
• Friday: US Employment situation report.

Bull View

As long as the monetary stimulus is in place, Bulls will remain confident of an ongoing medium-long term rally. Their next target in the S&P 500 is 1441.00.

Bear View

Bears will continue to look for further catalysts for a deeper correction and will be hoping weakness last week can follow through this week.

Futex View

We would back further weakness this week. The market has started to show signs of some short-term weakness and we would back further declines heading into the rest of the week.

24^th February 2011 

Currency Overview

Euro vs. the US Dollar (EUR/USD)

The Euro drove higher last week as speculation grew that the ECB might raise interest rates before the Federal Reserve. The ECB is keen to prevent inflation from rising fuel and food costs hitting EU consumers and potentially impeding further economic growth.

Thoughts from the trading floor

The EUR/USD headed off on a powerful buying movement last week, breaking key resistance at 1.3738. Bears were unable to put the brakes on the bullish advance and did not get the chance to retest the 1.3428 support. Momentum continues to build in favour of the uptrend, with a strong positive impetus looking likely to test large daily resistance at 1.3856. Sellers will hope to consolidate the market back towards the 1.3600 handle in an attempt to try and slow the market. If Sellers are able to spook the market lower, a break of 1.3495 will trigger a deeper move, giving sellers another stab at 1.3428 support. However, overall, the bullish campaign remains strong and looks set to continue into next week.

The Euro was rocked by some extremely hawkish comments from ECB’s Mersch last week; his suggestion being that ECB officials ‘may toughen their language on inflation’ which potentially indicates a readiness to hike rates.  He also suggested that the EU has ‘upside risks to price stability’.  The EU has already exceeded its 2% inflation target and will eventually have to rebalance their monetary stance.  So far, Trichet has only gone as far as saying the inflation outlook remains ‘broadly balanced’ and ‘could move to the upside’. There is potential that the ECB could raise rates before September this year.  With inflationary pressures mounting as a result of increasing energy and food prices, it will only be a slight delay before wages rise to compensate, thus making a rate hike essential. But a hike would increase the borrowing pressure on EU countries - particularly peripheral nations - and could stress an already troubled banking system which would exacerbate the sovereign debt crisis.

Bull View

Bulls remain in command of the market, driving towards the 138 handle. A key test will be the break of 1.3856, which mark the annual highs. A break here could open the floodgates towards the 1.4000 handle; a level easily achievable especially with recent ECB inflation concerns.

Bear View

Bears took the back seat last week. Hope will spring into the bearish camp if equity markets continue to weaken. A ‘risk-off’ asset move will likely see a flood of investors seeking safety in the Dollar which might give sellers the right stimulus to counter the current uptrend. 

Futex View　

We are still bullish the Euro. Our strategy continues to be to buy dips in the market. We will carefully watch out for any further comments from the ECB, which may hint at future monetary policy action.

17^th January 2011

Equity Index

Overview

Last week equities continued to push higher buoyed by strong earnings from JP Morgan and easing fears amongst European peripherals. On Friday the S&P 500 future reached an annual high of 1290.00, a level that represented the market’s highest point since September 2008. This week traders’ focus will be on US earnings with many large US firms reporting including Goldman Sachs and GE.

Thoughts from the trading floor

From a technical perspective equities continue to look strong. The S&P 500 future has achieved gains for seven straight weeks and shows few signs of slowing. Last week bulls achieved their primary objective of consolidating above key resistance/turned support at 1277.00. This week they will need to capitalise on this technical break or risk facing a loss of momentum; their next objective being a test of resistance at 1313.50. A failure to hold above 1277.00 could see the market fall back to 1245.50 with further support found at 1216.00.

Last week witnessed the beginning of the earnings season which to all intents and purposes got off to a strong start. JP Morgan comfortably beat expectations setting the tone for this week’s releases. This week’s focus will be on other financials including Goldmans and Morgan Stanley. US bellwether General Electric is also scheduled to report, their numbers always garnishing substantial attention and one definitely to watch. We expect the strong tone set last week to continue providing world equity markets with a further boost.

Last Thursday the ECB announced their latest interest rate decision which, as expected, was unchanged. However, Trichet did manage to surprise the market during his press conference when he raised his concerns regarding short-term inflation. This provided equity bulls with a shot across the bows as it increased fears that rate hikes may occur sooner than anticipated. At this stage no rate hikes are priced-in in the short term, so if we see a general toughening in language from leading Central Banks, this would have bearish implication for equity indices.

Important events this week.

• Tuesday: Zew Survey (GE), Citigroup & Apple earnings
• Wednesday: US Housing Starts, Goldman Sachs’ earnings
• Thursday: Phili Fed, MS earnings
• Friday: Retail Sales (UK), IFO (GE), GE earnings

Bull View

Bulls will now be targeting resistance at 1313.50, hopefully aided by strong earnings this week. Their main concern will now be profit-taking as investors look to realise profits after 18 months of strong performance.

Bear View

Bears will be desperate to see the S&P drop below 1277.00 opening the door for a break lower. Trichet’s comments last week regarding inflation will have given them hope.

Futex View

We believe that the current bullish trend in equities is coming to an end and a pullback is around the corner. When it finally arrives it will likely be aggressive; further European sovereign concerns may provide the catalyst for this move.

Last week equities performed strongly with the S&P 500 future setting new 2010 highs; peaking on Friday at 1241.50. This week sees a busy economic calendar with many releases.  Traders will be most concerned with the latest FOMC rate decision and US Retail Sales both released on Tuesday. (more...)