Volatile session coming with US data, reactions to FOMC and Scottish referendum

Market Review

Yesterday’s market movement was somewhat contained as the market was expecting Janet Yellen and the FOMC in the evening for the monthly meeting and minutes. The markets interpretation of the meeting was mostly positive, with stocks shooting higher for a new monthly high, and in the same manoeuvre US10Y and the dollar strengthened alongside. Negative correlations are only normally seen when good US specific data comes to the market, so in terms of the outcome from the meeting and how Janet Yellen and the FOMC manoeuvred to have this monetary policy announcement leading to a negative correlation between bonds/currency and equities, we must say we are very impressed. In terms of data yesterday inflation numbers showed a move in to negative territory, which would play support for the Federal Reserve to keep monetary policy accommodative. Crude inventories were bearish. In terms of strategies no entries were obtained within the allocated time, though the S&P, TYA and crude oil entries and targets were hit after the as the statement was released.

Today's Fundamental View

Today’s session is set to be one of the most volatile this week due to data that is coming from the US, continued waves of reactions from yesterday’s FOMC, and notably also due to the Scottish referendum which now has begun. Polls are showing the ‘No’ camp being in majority as the voting begins. Should this be the outcome we are likely to see a solid rebound in the currency over the next week to unwind some of the losses that have occurred in the run up to this democratic process which will determine the future of the relationship between England and Scotland. Data today will see Housing Starts and Building Permits, which have both increased the last month compared to the previous, and we expect this to continue. The only draw back in housing last month was New Home Sales which was lower than previous by a meagre 10k. The initial jobless claims has been steadily around 300k and we assume this will continue. Anything around this will be seen as positive, although a number closer to 330k will leave the bears in the drivers seat as far as equities are concerned. The Philadelphia Manufacturing Index later this session has beat expectations every month since February, which coincidentally was also the only time this year that missed the headline. With the sentiment from yesterday’s FOMC we move in to the afternoon with a bullish outlook on risk assets and the USD, as well as crude oil. Should news support the ‘No’ movement cable should strengthen, though traders should be aware of any ‘Yes’ polls as this may drive sentiment regarding the Spanish region of Catalonia.

Alternative View

Any geo-political risk should be carefully analysed, with continued focus on Ukraine as well as US data being a key catalyst for movement today. Monetary policy comments from the US will have the market jumping as we prepare for tonight's minutes.