Eurozone economic confidence hits highest level since 2011

The Day So Far

Equity markets continuing to get pummelled this morning after a punishing US session, the S&P crashing below 1900 support ending the day in the red 2.57% in cash terms. Markets globally look poised to test their August lows; indeed this morning the Dax became the first of the major indices to break its August lows before bouncing strongly. Although we have seen a slight rebound from key levels, markets remain skittish and not even a very strong set of data out of the Eurozone has been enough to lift the gloom. Eurozone economic confidence in September rose to its highest level since 2011, although German CPI came in weaker than expected, fuelling fears that the global deflationary malaise is showing no sign of abating. This follows a very negative Asian session, where the Hang Seng finished negative almost 3% and the Nikkei 4% in the red. This sell-off goes beyond global growth fears; it is about the credibility of central bankers, the mixed messages investors have been receiving and the ability of central planners to ‘manage’ inflation expectations and the economic cycle.

The Afternoon View

The strength of yesterday’s sell-off took even bears like me by surprise, coming as it did on a day without any major data releases and ahead of a crucial week for economic news flow. However, we maintain our short bias for the S&P until it tests the August lows. We are looking once again for safe haven flows into T notes, which this morning reached its highest level for the month. The euro, as discussed previously, has been a very tough call recently, as it has appreciated generally against the dollar during this recent bout of risk-off. However, we are still looking for dollar strength going into Friday’s Non Farms. Crude remains stuck in a tight range for the month, oscillating between $49 and $44. It has tended to positively correlate with equities so if we are anticipating further downside for equities it makes sense for a short call in crude. The $4 handle is a solid barrier for now, although the API data, to be released after the US close, should provide some clues as to whether we march to the top of the range or finally break $44 handle resistance at the end of the month.

•  Download Full Indices and Oil strategies