UK borrowing remains above target

Market Review

Yesterday’s movement was muted for much of the session as the market was highly anticipating the Federal Reserve minutes in the evening. Overall the minutes were somewhat hawkish, though the statement showed that members were in agreement over providing the public with additional information about the exit strategy well before actually reducing policy accommodation. The committee noted that downside inflation risks had reduced but remains below target, which in turn warrants their ongoing accommodative monetary policy stance for now. Despite these notes, there is a growing consensus amongst analysts, due to the bullish tone on the jobs market, that discussions on rate hike strategies are heating up.

Today's Fundamental View

This morning has seen cable trade in a range between S1 and yesterday overnight low on the back of lower than expected UK retail sales data. The movement overnight was initially bullish, but the data this morning led to a move down to see a perfect range being formed. Manufacturing data in Europe disappointed overall, with France and the overall Eurozone numbers missing on the headline, although Germany posted marginally better numbers than expected. The mildly bullish sentiment has not been halted on the back of these numbers, with the S&P 500 currently trading at all time highs. Yesterday the execution of an American journalist by IS saw an increased chance of more us boots hitting the ground again in Iraq, to topple the rise of the extremist regime which has taken controls over large parts of Syria and Iraq. This may end up feeding through in a negative manner on crude prices as it will over the longer term mean more stability in the region in terms of oil supply. Crude may another multi month low this morning breaking below $93. The data calendar this afternoon is packed, and we are bullish on all parts; especially the jobless claims as well look for an improved figure after last week’s marginal disappointment as the labour market conditions have overall been improving. The US manufacturing numbers have been increasing as of late and we expect this trend to continue. Tomorrow’s Jackson Hole meeting may provide some muted market movement after the last piece of data being released at 1500BST as market participants are expecting comments out of the symposium, and yet another speech from Yellen at 1500BST tomorrow afternoon which may shed more light on the rate hike conditions. Today’s strategy is long on equities, targeting 2000 for the second target for the first time in history. With this we are of bearish on T-notes and EUR/USD, with a negative view on crude as the global production continues to increase.

Alternative View

Miss on headline data may lead to a move down in equities and invalidate our strategy. Any geo-political risk should be carefully analysed.