Eurozone inflation slows to five-year low

Market Review

Last week was one of high price volatility as we saw large spikes throughout each in the emini S&P. Ultimately though we failed to gain direction as the market traded in a vacuum of significant news. We finished the week in the middle of the range, with the all time high from March 3 rd still intact, though still in sight should the pay rolls number this week beat on expectations and post a firmly above 200k figure. The strategies last week struggled somewhat within this market environment, though the S&P entry on Friday proved to be decent.. Crude oil continued higher throughout the week and ended the week just over $2 up from the low, with the tensions in Ukraine still being one of the primary drivers for the bullish commodity, which in the event of less geo-political tension would have fallen as the USD have been strengthening and this normally weighs it down. Bonds have had a difficult week, caught between a rock and a hard place, as tapering will continue and the interest hike has been discussed more heavily, and at the same time the previously mentioned geo-risk means investors still desires to command the asset.

Today's Fundamental View

Today’s session started with a tight range across all assets overnight, though with the inflation data from the Euro-zone showing slightly lower than expected numbers at 0.5% vs analyst consensus of 0.6% there was action across all assets related to the ECB. Though a knee jerk reaction was straight forward this was almost immediately retraced as although this is low analysts believe it is not low enough to secure ECB action on Thursday. Jens Weidmann, the head of the Bundesbank, stated that there too much emphasis on the numbers should not be assumed, as the cause of the slowdown was largely due to cyclical factors. These hawkish comments meant that the Bund has fallen sharply and taken its US counterpart with it, meaning trading this today would probably be the most straight forward product assuming Chicago PMI will not be out of the range expected, and also assume an uneventful Janet Yellen speaking in Chicago 10 minutes later after the release. We try not to overwhelm our readers with comments on Ukraine, though it is worth mentioning that Kiev has announced that Russian troops on its borders in the East have started retreating. This may help reduce uncertainty, though as always Vladimir Putin can be a very tough man to read and should Yanukovych reiterate his wish for referendums across Ukrainian regions, all the recent good work and progress may be undone. Today’s strategy is mildly bullish, with a long strategy in the S&P, short US10Y, short crude as Libyan rebels announced possible deal on key ports next month, as well as a very risk averse entry on EURSUD as the uncertainty is immense today with data, Weidmann, more data and Yellen pulling in opposite or unknown directions.

Alternative View

Dovish comments from central bankers may adversely affect the markets, as will any developments in Ukraine.