Low data session but earnings estimates continue

Market Review

Yesterday’s trading session saw an initial sharp sell off in equities. The bearish tone was spurred by poor data out of the Euro-zone and increased risk in the peripheral, as well as speculations on a Federal Reserve interest rate hike a few months sooner than expected, which saw the US strengthen, in a move that as opposed to the S&P, was not retraced. The move up in equities was in line with Amplify expectations as we identified the risks as not really changing much in terms in which value them, at the same time as Alcoa having kicked off the earnings season with beat on estimates. If anything the risk is to the upside, and we are counting the days until the S&P breaches the 2000 handle and leads other equities further up. Initial Jobless Claims continued to post decent numbers and is still in the range just above the 300k handle, though we expect this number to drop by 10-20k later in the summer. The crude oil entry was only obtained in the evening yesterday and we will not count this towards our winnings. No other entries were obtained. 

Today's Fundamental View

This morning has seen a bid tone go through American equities, with European lagging slightly behind. At the same time bonds have shown a slight positive correlation as the large indices and 10 year bonds are at the highs. One reason may be seen in the bond auction out of Italy, which sold €7.5 billion worth of debt, in combination with record low yields on the three year auction which may see the yield curve even out to a certain degree through today’s trading session in Italian bonds, but it should not have a continued effect in other bond markets. This afternoon is very low on data, though it will be interesting to see the release of Wells Fargo earnings estimates which will have all eyes pinned to it at 1300BST. The bank, which is one of the largest in the US should be seen as an industry representative rather than isolated as one company. If the release beats on expectations then we should see other banking shares go bid as well. In terms of investment banking, the largest uncertainty lies with trading revenue which is projected to continue to fall from last quarter, where trading revenue for the 10 largest investment banks was down 9%. Trading performance is expected to decline, but overall earnings are still projected to beat as expenses have been cut through the financial crisis. On top of this we also see investment banking revenue to beat on the headlines, with M&A activity being quite up-beat and may top analyst estimates. With this we see some widespread strength in the equity sector, which will strengthen come Monday and the arguably more important report from Citigroup which benchmarks a whole different set of banks. For currencies today we will be long the dollar, short treasury notes and short crude as tensions in the middle east are still high, but have failed to impact the supply of the black gold
 

Alternative View

Hawkish monetary policy comments and/or a worse than expected report from Wells Fargo may adversely affect today’s strategy