Friday, September 28, 2012

Morning Update

Yesterday Spain presented a budget that included spending cuts, no tax hikes, and an optimistic view of economic growth next year. This sent US stocks higher on the day which spilled over into China’s Hang Seng. However, this morning in Europe is lower and Spain’s benchmark IBEX index is set to close down 5% on the week. Later today the results of Spanish bank stress tests are due which could be market moving news.

Yesterday’s unusual options activity occurred in YHOO and GLD. Yahoo’s stock has had a tough year; down 1.5% while the S&P 500 is up 13.3%. But one options trader is better that the company has better times ahead of it. Yesterday we saw someone buy the November 17/18 call spread for a net debit of $0.12. This is a bullish spread that returns $0.88 if YHOO is above 18 at expiration and only looses $0.12 if YHOO is below 17 at expiration. With YHOO closing yesterday at 16.04, this option trader is expecting the stock to appreciate 12% over the next 49 days.

There are several possible reasons for this bullishness. First, Forbes reported yesterday that Eric Schmidt of Google said he is interested in a search deal with Yahoo. In addition to this deal, Yahoo has recently replaced its CEO and CFO in order to revitalize the company. This morning Goldman Sachs reinstated coverage of YHOO with a buy rating and price target of $22.

Yahoo’s fortunes could be changing but until the company gains some traction we like playing it with low risk, high reward spreads like this instead of buying the stock.

Another unusual options trade yesterday was on GLD, the SPDR Gold Trust ETF. One trader sold the Dec. 170 straddle 16,000 times for $10.70. Traders put spreads like these on when they expect sideways price action in the underlying stock and expect implied volatility to decline. This particular trade will be profitable if GLD is between 159.30 and 180.70 at December expiration. Implied volatility in GLD options have been declining since making a multi-month high on Sept. 12th, but ticked up yesterday as GLD rallied. This trader used this opportunity to short implied volatility at a favorable price and is betting the trend downward will continue.

After gold’s recent run up we think GLD is likely to pause here and move sideways to build a base and consolidate. However, we do not like to trade short straddles because they have unlimited risk. Instead we prefer to sell calls against stock to protect the position from some downside and generate income in a sideways market.

Thursday, September 27, 2012

Morning Update

The major news overnight was that the People's Bank of China injected 365 Yuan ($57.92 billion) into the economy this week in order to stimulate the economy. This booted overnight risk sentiment and has US stocks in positive territory this morning.


Yesterday as MSFT fell for a fourth day in a row we noticed option traders stepping into the market to buy long dated calls. The biggest trades of the day were the purchase of 12,000 Jan. 40 calls for $0.59 and the purchase of 7500 Jan. 27 calls for 4.80. The 40 calls will turn a profit if MSFT is above 40.59 at expiration, a 35% move higher, and the 27 calls will make money if MSFT is above 31.80, a 5% move higher. Yesterday MSFT touched its 200-day moving average, which stopped the stock's decline and acted as support. These option trades show traders are willing to bet that this is a turning point in the stock and that it will see a sharp rally into 2013. Microsoft has several market moving events ahead on its calendar for October: on the 18th it will release earnings and on the 26th it will release the new Windows 8 operating system. We see buying calls into this week's sell-off as a great way to gain exposure to Microsoft's potential upside ahead of a major product release while limiting downside risk and keeping cash outlays to a minimum.

Wednesday, September 26, 2012

Morning Update

Yesterday’s sell off in US equities spilled over into the Asian and European sessions, sending the Nikkei down 2.03% and the DAX down 1.92%. There has been lots of attention on protests in Spain recently, which has spooked markets and sent Spanish 10-year bond yields above 6%. Rising bond yields mean that a Spanish bailout from the ESM will be sooner rather than later. Tomorrow Spain will release their new budget which will include austerity measures and reforms. The market’s reaction to this, as seen through the EUR/USD cross, Spanish bond yield and Bunds, will be an important barometer of the market’s expectations for Spain. If the budget induces risk-off selling Spain could be forced to ask for a bailout as soon as this week. If the market seems satisfied with the budget Spain could wait until Oct. 21 regional elections are held to ask for a bailout.

Yesterday AAPL led the market down, closing down 2.5% on the day. As a result implied volatility in October options popped 10.7%. This move caused one trader to trade a spread known as an iron condor. An iron condor used when traders think a stock will remain sideways through expiration and thus want to short volatility. This trader sold the Oct. 660/710 strangle and hedged by buying the 650/720 strangle. This was put on 1,645 times. As long as AAPL, which closed at 673.54, is in the 660-710 range at October expiration this trade will make $0.38, and if AAPL is either below 650 or above 720 then this trade will lose $9.62.

Another large option trade yesterday was on XRT, the SPDR S&P Retail ETF. This ETF is 11% below the 52-week high it made two weeks ago, and one trader is making a bet that it will continue lower. Yesterday the Nov. 63/58 put spread was bought 24,650 times for $1.25. This is a bearish spread that makes money if XRT is below 61.75 at Nov. expiration. If XRT is below 58 at that time the spread will make its maximum profit of $3.75. This trade could be speculation that retail stocks lead the market lower, or could be a hedge against a portfolio of retail stocks.

Tuesday, September 25, 2012

Morning Update

European equities traded slightly lower heading into the North American crossover with little newsflow to prompt market direction, as investors continue the wait-and-see play for any major developments from the Eurozone. Nonetheless, some modest risk-off sentiment is observed in the equity space, with financials underperforming the broader indices. US stock futures currently trade higher, indicating a modestly higher open on Wall Street today. (ZeroHedge)

Yesterday we saw bullish option trading in Viacom, with one trader buying 60,000 December 60 calls for 0.50 with the stock at 54.59. This is an aggressive bullish bet that the stock will continue its strong trend upward into the end of the year. This trade breaks even if VIAB is at 60.50 at December expiration, which would require an 11% move up in the next 87 days. Yesterday Deutsche Bank raised their price target on the stock from $57 to $62 citing improving Nickelodeon ratings.

Another name that had unusual activity yesterday was XHB, the SPDR Homebuilders ETF. This ETF hit a new 52-week high last week and is up 47% year to date. One trader, however, believes this run up is overdone and is betting on a 15% or more correction by January expiration. The biggest trade of the day in XHB was the purchase of 42,000 Jan. 22 puts and simultaneous sale of 42,000 Jan. 20 puts for a net debit of $0.26. This is a limited risk, bearish vertical put spread. Basically the trader is buying the Jan. 22 puts and financing this by selling the Jan. 20 puts. This reduces the net risk in the position to $0.26 but also limits the potential profit in the trade to $1.74. The spread breaks even if XHB is below 21.74 at January expiration, and makes 6.7 times risk if XHB is at or below 20, a 22% move down from yesterday's close.

Monday, September 24, 2012

Morning Update

This morning S&P futures are lower ahead of the market open. Sentiment in the European session as negative after the German IFO business climate index was reported at 101.4, the fift consecutive monthly decline. In particular European basic materials equities are being sold as fears of a Chinese slowdown continue to weigh on the sector. Gold, silver, and crude oil are all lower as well with the US dollar higher.

Friday we saw unusual options activity in XRT and FB. XRT is the SPDR Retail ETF, and one trader is betting it will make a big move before October expiration. 27,975 60 Oct. puts and 27,975 Oct. 68 calls were bought on for a net price of $0.30. With XRT at 64.02 at yesterday’s close, this strangle makes money if the stock moves above 68.30 or below 63.70 at expiration. A strangle is a spread option traders use when they believe a stock is about to make an explosive move but are unsure of the direction. The spread is also used when they believe a stock’s implied volatility is too low and likely to increase. XRT 30-day implied volatility made a new 52-week low on Friday, which could have been the reason this spread was bought.

Another large trade was saw Friday was the sale of 12,500 Oct. 19 FB puts for $0.15. This trade makes money if FB is above 19 at expiration, which is 16% below Friday’s close. Often traders sell a put on stock they would like to own at a level they are willing buyers. If the stock is below the strike their option is exercised and they are put the stock. If the stock rises they get to keep the premium collected for selling the option, which is like being paid to wait for a good entry.

Friday, September 21, 2012

Morning Update


This morning stocks, gold, and crude oil are all higher with VIX futures lower. This risk appetite is being driven by a report in the Financial Times that EU authorities are in “fresh talks” with the Spanish government to iron out details of a bailout before it is formally requested. This has helped the Euro regain the 1.3 level after selling off hard yesterday.

Prior to Oracle’s earnings report yesterday after the close, one trader bought 20,307 Oct. 32 puts for $0.79 and sold the same number of the Jan. 34 calls for $0.98. This spread, known as a collar, was put on for a net credit of $0.19 and was likely used to protect the downside risk of holding a long stock position through the earnings announcement. Spreads like these are useful when you are long stock and bullish over the long term but believe the stock could dip in the near-term. By buying the Oct. 32 puts the trade is able to eliminate risk below that level. However, by financing the puts by selling the Jan. 34 call the trader foregoes profits from owning the stock if the shares trade above 34 at Jan. expiration.

One unusual trade that caught our eye yesterday was the sale of 5,000 US Steel Jan ’14 5.0 puts for $0.34. The trade is unusual because X closed yesterday at 20.13, making these puts 75% out of the money. This stock is heavily shorted and was down 3.5% yesterday on another analyst downgrade. The company faces an unfavorable macroeconomic environment due to slowing demand in China and an inability to keep raw material costs at US plants low enough to be competitive globally. This put sale could be part of a covered put, in which a trader shorts the stock and then sells a put to generate income and hedge some risk on the upside.

Thursday, September 20, 2012

Option Activity in GM

With GM backing off four month highs one option trader is getting bullish on GM but is using a time spread as a cautious way to play the upside. The trader bought 13,300 January '13 20 calls and sold an equal number of Jan. '14 calls for a net credit of $1.30. The trader gets to keep this premium if GM stays above 18.70 through Jan. '13. This position is similar to being short the Jan. '13 20 put but instead of being short volatility, this trade benefits if volatility rises into Jan. '13 and implied volatility in Jan. '14 remains unchanged. 

Unrest in China has forced the closure of several Japanese auto manufacture's plants which is causing major disruptions throughout their supply chain. GM's supply chain remains unaffected and could potentially see this situation translate into relatively higher margins and sales. The time spread traded today stands to profit from this scenario and will return 4% annualized if GM remains above 20. However, since this is a hedged trade the margin costs will be low providing the opportunity to use leverage for greater returns at the cost of greater risk.

Morning Update


This morning S&P 500 futures are pointing to a lower open as the Chinese September PMI was reported at 47.8, a level which points to economic weakness. The European composite PMI was also released overnight and was lower than expected at 45.9. This sent the Shanghai Composite down over 2% and has the Euro backing off recent highs into the sub 1.30 range. In the US initial jobless claims came in at 382K, which was worse than the consensus expectation for claims of 373K.

Yesterday’s unusual options activity focused on clothing retailers: we saw a trader buy a 2x1 put ratio spread trade 24,922 times in JCP and another roll a short at the money put position in TJX from September to October 25,218 times. JC Penny is a US retailer currently going through a major restructuring to target higher end shoppers, while TJX is a off-apparel retailer that owns TJ Maxx and Marshals. The sentiment expressed in these trades favors bearish macro view in which shoppers will favor discount, value oriented stores over higher-end luxury goods.

The JCP trade is a bearish put ratio spread. The trader bought 24,900 Nov. 27 puts for 1.68 and sold twice as many Nov. 22 puts for $0.43 in order to finance the trade. The resulting spread makes money if JCP is between 17 and 27 at November expiration, with the maximum profit occurring if JCP closes at 22. If JCP rallies from here the trade will only loose the premium paid, which is $0.82.

In contract to the bearishness expressed in the JCP trade, we saw a trader roll a short put position from September to October in TJX. The trader bought 25,218 Sept. 45 puts for $0.37 and sold 25,218 Oct. 45 puts for $1.10. This trade was executed for net credit of $0.73 and results in the trader being short an at the money put, which is bullish position. This trade will profit if TJX is above $43.90 at October expiration. Selling a put is a strategy traders employ when they would like to get long a stock at a specific price (in this case 43.90) and want to generate some income while waiting to buy on a pullback.

Wednesday, September 19, 2012

Unusual Options Activity


Yesterday there was unusual options activity in FXI and EWJ. 40,000 FXI Oct. 30.5 puts were sold for $0.09 and separately 20,000 EWJ Jan. 10 calls were bought for $0.13. Selling an FXI put is a neutral to bullish strategy that profits if the ETF is above 30.41, 13.5% above yesterday’s close, at October expiration. The EWJ long call is a bullish strategy that profits if the ETF is above 10.13 at January expiration, a 8% move higher. The bullish tone of these trades is interesting given the predominately negative tone of news out of the region. Protests have sprung up across China as the Chinese rally against the Japanese purchase of an island the Chinese claim as their own. The protests have become severe enough that Japanese auto manufacturers have temporarily closed their plants in China. However, these large trades show that some traders do not expect this to hold back the Chinese and Japanese stock markets in the coming months and are gaining long exposure now.

Another large option trade yesterday was the purchase of 30,000 IWM Nov. 80 puts for $1.10. This is a bearish trade that profits if IWM is below 78.90 at November expiration. This is a 9.8% move from yesterday’s close. IWM made a new all-time high last week and is currently just 1.4% below that level. The trader buying these calls is likely long small-cap stock and is seeking protection from a market decline heading into the election.

Tuesday, September 18, 2012

Unusual Options Activity


Yesterday's biggest options trades again involved the financial sector as we saw traders continue to buy Bank of America call options. The BAC Nov. 10 Calls traded 58,000 in a trade above the ask for $0.33, and at the same time 52,772 BAC Nov. 9 calls traded above the ask at $0.77. This trade profits if Bank of America is above 10.06 at November expiration, which is a 8.2% move from yesterday's close.

Another large option trade involved the XLF yesterday: a trader sold 50,000 December 17 calls for $0.27 and also sold 25,000 December 16 puts for $0.61. This is a 2-by-1 short strangle and  profits when the stock remains range bound and implied volatility drops.  We suspect twice as many calls we sold as puts in order to flatten the trade's delta so that the position is a purer play on implied volatility dropping. This type of trade makes sense for someone who is long calls in a financial stock like BAC or JPM and wants to hedge themselves in the event those stocks do not move from current levels.
Outside of the financial sector we saw unusual options activity in the mining sector. One of the largest trades was the purchase of 61,000 PAAS (Pan-American Silver Corp.) Jan. 2014 50 Calls for $0.60 with the stock at 20.85. The net premium paid in this transaction was $3.66 million, and is a bet that the stock will be above 50.60 in January 2014. This would require a 142% move in the stock over the next 486 days. The company's primary business is mining silver ore in North and South America, and this trade is likely a bet that silver prices will rise in the coming year and benefit PAAS.

UPDATE:

After looking further into the PAAS trade we noticed that 650,000 shares of stock were sold minutes after the option block trade. Selling the stock nearly flattens the positions delta and makes this trade more of a long volatility play than a bullish bet on the stock. The net position is similar to a long out of the money straddle; at expiration the position profits if PAAS is below 15.06 or 54.26. However, being a synthetic long straddle, this position will profit in the short term if implied volatility continues to increase in PAAS.

Monday, September 17, 2012

Unusual Option Activity

On Friday we saw options traders continue to gain long exposure to US financials and emerging markets, all of which are likely to appreciate as a result of QE3, but also noticed traders hedging themselves against the current trend of a weakening US dollar and rising S&P 500.

We saw 101,039 XLF Oct. 17 Calls trade on the ask for $0.12 as the ETF broke out to a new 52-week high. Friday’s put-call ratio in this ETF was 0.124, showing that traders are definitely expecting a continued move to the upside. This trade profits if XLF is above 17.12 at October expiration in 32 days, a 5% move higher from Friday’s close. We also saw 54,087 EEM Oct. 43.5 Calls trade above the ask for $0.744. This trader is betting that EEM will be above 44.244 at October expiration, a 4.5% move higher from Friday’s close.

In contrast to these bullish bets, we saw a trader buy 25,890 IWM Nov. 82 puts at the ask for $1.34 and finance this by selling an equal number of Nov. 78 puts for $0.66. The net cost of this trade is $0.68, and it profits if IWM is below 81.32 at November expiration. The motivation behind this trade is likely protection for a long stock portfolio heading into the election.

Another trader sold 13,161 UUP Oct. 22 calls on the ask at 0.109. UUP, the Powershares US Dollar Index Bullish Fund, has been down for the past four weeks in a row, so this is likely a trader selling a call against a long stock position to reduce positions downside risk.

Friday, September 14, 2012

Unusual Options Activity

Yesterday 20,039 EEM September 41.5 calls were bought at the ask for $0.37 and 51,558 EEM Nov. 36 puts were bought at the ask for $0.35. VXEEM, the CBOE Emerging Markets ETF Volatility Index traded down near its 52-week low, and this trade was a bet that volatility is bottoming out and will increase. EEM closed yesterday at 41.68, so the call strike is much closer to the money than the puts. This suggests the trader is also bullish on emerging markets but is protecting himself should there be a strong reversal and a break of support in the 37 area.

Yesterday we also saw a lot of call buying in the financial sector as traders made bets banks would rally into November expiration due to Fed easing. On trader bought 38,671 BAC November 10 calls for $0.26. Bank of America’s 52-week high is 10.10, and this trade is a bet that the bank trades higher than that in the coming months. We also saw a trader sell 44,211 XLF Oct. 17 calls and buy 40,000 XLF Nov. 17 calls for a net debit of $0.09. This appears to be a trader rolling his long call position forward to profit from a rally into November. Yesterday XLF broke out to a new 52-week high, and this is a bet it goes at least as high as 17.09 by November.

Thursday, September 13, 2012

Unusual Options Activity

Yesterday we saw heavy put buying in TLT, the iShares Barclays 20+ Year Treasury Bond ETF as 5,000 October 122 Puts traded on the ask for $2.52. This bearish activity follows the recent news that Bill Gross cut his Treasury bond holdings to 21% from 33% of his Total Return Fund, the world’s largest bond fund. The way we are trading treasuries is to replace a long TLT position with a short out of the money, long dated put. This gives us exposure to fixed income and locks in an entry price we are happy with if TLT continues to experience short term weakness.

Yesterday we also noticed heavy call selling in GLD, the SPDR Gold ETF. 12,000 GLD September 161 calls were sold below the bid for 7.125, and 12,000 GLD September 166 calls were sold below the bid for $3.25. Price action in GLD will be sensitive to the outcome of the Fed meeting, and this trade appears to be a trade positioning himself to profit from a “buy the rumor, sell the news” scenario. We remain long term bullish on gold but are keeping all long positions hedged with a short call to protect ourselves from short term weakness after a strong rally the past few weeks.

Wednesday, September 12, 2012

Morning Update

Early this morning the German Courts approved the ESM with the stipulation that German liability to the fund cannot increase without Bundestag approval. The news has sent the Euro and gold higher while Italian and Spanish bond yields have fallen.

Today Apple is expected the unveil the iPhone 5 during a press event kicking off at noon CST. History has shown that Apple stock rallies into the announcement and then sells off the week of before continuing its rally. We have seen this pattern hold true this week. Yesterday we noticed abnormal weekly call option volume in Apple with the majority of volume going off at the ask. This suggests traders are buying weekly call options in anticipation Apple’s stock will head higher into Friday’s expiration. All call strikes from 660 to 680 were active.

Yesterday we also saw an unusually large VIX trade: the Dec. 24 / Nov. 18 strangle was purchased 72,435 times. This trade was part of a roll forward to give the trader long volatility exposure into the end of 2012 as a hedge to a long stock position.

Monday, September 10, 2012

Morning Update

On Friday US stock indices rallied to close at the top of their weekly range. We saw lots of call buying, particularly in the financial sector, as traders bet on banks to lead the market higher due to supportive measures from the ECB and possibly the Fed.

10,000 BAC Oct. 9 Call traded on the offer at $0.31. This suggests a trader was buying October calls, anticipating that BAC would be above 9.31 at October expiration. Bank of America has recently formed a double bottom formation at 7.00 and moved sharply upward on heavy volume last week through resistance at 8.30.

30,000 EWJ Jan. 10 calls traded on the offer at $0.09. EWJ is the iShares MSCI Japan Index Fund, and this options trade suggests that the trader is bullish on Japanese equities. The breakeven price of this trade is 10.09, which is just below EWJ’s year-to-date high of 10.20.

80,000 XLF Oct. 16 calls traded on the offer at $0.20. The XLF is the SPDR Financial Select Sector ETF, which rallied hard last week. XLF’s 2012 high is 16.00, which the ETF looks poised to test sooner rather than later. This option trade suggests the trade expects the ETF to run through 16 and on up through October expiration. Should the ETF break through resistance at 16.00, 17.20 is the next resistance level.

Friday, September 7, 2012

Morning Update

Risk assets were up across the board yesterday following Draghi’s announcement that the ECB would initiate an unlimited bond buying program. US equities were up 2%, Spanish 10-yr bond yields fell below 6%, and the Shanghai Composite jumped 4%. Industrial production also unexpected increased in Germany and the UK, helping to fuel the rally. The EUR/USD currency pair is currently up over 1%.

Following Draghi’s speech the ball is now in Spain’s court. The new question is what will the terms of a Spanish bailout be? Terms have yet to be made public but they are likely being debated already. Spain has already pushed through their own austerity measures and will likely try to convince Germany that these are all that is needed.

In the US the non-farm payrolls report showed a gain of 96,000 jobs, missing expectations of a gain of 125,000. The unemployment rate ticked down to 8.1%, mostly due to a shrinking labor force. The July NFP numbers were revised down 22,000 to 141,000. The news caused a kneejerk reaction to the downside in the S&P 500 futures but stocks have since recovered and gold is up over 1%. This suggests the market is looking at this moderate miss as another reason the Fed will enact new easing measures sooner rather than later.

Thursday, September 6, 2012

Morning Update

In Europe:

ECB president Mario Draghi announced that the European Union’s benchmark interest rate will remain unchanged at 0.75%. However, in order to provide easing the central bank will undertake Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds. There will be no quantitative limit on the size of these purchases,all purchases will focus on short term debt, and all purchases will be fully sterilized. Draghi says this is fully within the ECB’s mandate. Draghi also said separate press releases will detail the OMTs and a change in collateral requirements.

In the US:

“Seeing strength for tomorrow's employment report, ADP estimates private payrolls in August will rise 201,000. This is well above the high end of expectations at 165,000 and also well above ADP's revised level for August of 173,000.” (Barrons)

“Layoff announcements are lower, according to Challenger's count for August which is 32,239 for the second lowest of the recovery. Layoff announcements have been heavy in the telecom sector where they lead August's total. Second is health care which is another sector being hit. But in sum, today's report is very positive and points to strength for tomorrow's employment report.” (Barrons)

Wednesday, September 5, 2012

Morning Update


The situation is Spain continues to deteriorate and it is beginning to look “like the beginning of the end” as the WSJ reports that Spanish banks have activated an emergency lending program which allows them to bypass the ECB’s collateral requirements and borrow directly from the bank of Spain. This is the same path Greece, Portugal, and Ireland took to their bailouts.

Spanish finance minister Luis de Guindos said Spain is not ready to sign over full fiscal sovereignty to the EU in a full blown ECB bailout, saying he wants clarification of the terms first. This comes as German Chancellor Angela Merkel leaves for Madrid to discuss the terms of a rescue of up to 300 billion euros beyond the 100 billion euro rescue already agreed upon.

It would appear that Germany is fully behind Draghi’s plan to buy bonds to rescue Spain as Jorg Asmussen, Germany’s ECB board member said today “The risk premia of sovereign bonds now reflects not just the insolvency risk of some countries but an exchange rate risk, which should not theoretically exist in a currency union. The markets are pricing in a breakup of the eurozone. Such systemic doubts are not acceptable” (Telegraph).

An equity strategist at Goldman Sachs is predicting a rapid sell off in September and is advising clients to buy S&P 500 puts. He cites market disappointment over ECB and Fed announcements in the coming week. The VIX would suggest that he is not alone, as volatility has rallied from 13.30 to nearly 19.00 yesterday while the S&P 500 has not budged.

Today’s US news was upbeat, with non-farm productivity increasing a better than expected 2.2% Q/Q. Tomorrow’s jobless claims, the ECB meeting, and Friday’s non-farm payrolls are all likely to be major market moving events that traders will be positioning themselves for today.

Tuesday, September 4, 2012

Morning Update

While traders in the US were out of the office for the long weekend Europeans markets jumped higher on comments from ECB president Draghi that the central bank can buy government bonds with maturities of 2-3 years without breaking EU treaties. This has sent Spanish and Italian bond yields sharply lower and the Euro higher against the dollar.

Also notable from Europe is that Moody's cut its outlook on the EU's medium and long term AAA bond ratings from stable to negative. This was done to reflect Moody's negative outlook on Germany, the Netherland, France, and the UK.

Next week the German Supreme Court will rule on the legitimacy of the ESM. German finance minister Schaeuble said that the German government had carefully reviewed the treaties and could find nothing in contravention with the German constitution (Reuters). Nonetheless the event will likely drive more volatility into the market as the decision approaches on September 12th.

In the US this morning the key data release will be the ISM manufacturing index. Consensus estimates are for a reading of 50.0 after last month's reading of 49.8. This Friday all eyes will be on the NFP report. If the number is disappointing traders will have heightened expectations of action from the Fed at their meeting next week.

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