Equities Market Update

For the short-term view, WTI crude oil's break of 60.77 on Friday is important as it opens the door to much higher levels. Thus, our call on oil-related shares is as bullish as ever.
Last week, we entered both an Oil Drillers basket (PTEN, NBR, HP, UNT) and a core long in Anadarko Petroleum (APC:xnys).

With a rally in commodities and energies in particular, it doesn't take a whole lot of brain power to plot the direction of energy stocks in the short-term. We're quite happy to be long this sector while at the same time being bearish on the broader market in the next 2-3 months.

Inflationary fears are on the rise and all eyes are on Wednesday's slew of key US data, especially PCE core, the Fed's preferred measure of inflation. CPI surprised to the upside last week - the feeling here is that PCE might do the same. Potentially, this could mark the end of the maturing bull run.

It usually takes more than a single data point to change the direction of the broader market (and the Fed). This time it's no different. But, there are several signs in the market place that points to excessive optimism and usually that's a bearish setup.

With so much focus on Goldilocks, a sudden change of sentiment could lead to rather severe correction. Specifically for Europe, as Dresdner Kleinwort points out, the longer the Fed is on hold, the more the equity market is reassured and the current confidence in no change thus gives the equity market extra confidence.

However, using the last 6 occasions when the Fed was on hold for 10-months or more, European equities have faltered around the 8-to-10 month period. That period is now.