Financial Gossip

Finally we have broken out of the constricted ranges of recent sessions as the markets decide this morning that the future is not as grim as many might be forecasting. The FTSE has risen above the 5180/5200 resistance range and is powering ahead towards the middle 5200’s as I write. This represents its highest price for several weeks but, more importantly, seems to have moved us away from the bearish phase that has been dominating since the first week in January.

The trigger for the move seems to have been better than expected numbers out of Barclays who have once again defied expectations with substantially better than forecast results this coupled with the EU attempting to play hardball with Greece (and by association Spain, Portugal and Italy as well) has given a much needed boost to investor morale. Whether all this will survive the anticipated global spending squeeze is unknown, of course, but for the moment the bulls in virtually every asset class are enjoying their day in the sun.

The FTSE is at it highs for several weeks at 5230 having finally breached 5200 in very early action. There is some minor resistance at 5250 but for the bulls the target seems to be 5275/80 and then 5360. For pressurised bears the hope will be for a swift return below 5200 in the very short term at least.

The US markets have also moved higher with the S&P breaching 1082 which had proved something of a block and is now trading at 1089. The obvious near term target is 1100 but we may find that 1105 is the more crucial point if the rally is sustained. The market has tended to shoot through the 1090’s on it way somewhere else over the last four or five months with supports and resistances tending to be at, or just above, 1100 or at, or just below, 1085. Very few moves have petered out in the 1090’s.

On the currency front the activity is somewhat less interesting but for the Euro there is at least some reprieve as the sub 1.36 level has been rejected once again. The markets have tended to rally on dollar weakness over the last month or so and vice versa so it is not surprising to see the Euro move higher on the break out for equities and Gold. The move higher though is still quite restrained just getting us to 1.3675 as I write and the fear for dealers must be that new revelations of the sums required for the Southern States or of the understandable intransigence of the Northerners may deal another blow to sentiment for the currency.

Resistance for the Euro is at 1.3690/1.3710 just above the current level. A breach through here may give hopes for further strength to the 1.38 level. Failure through today’s session to make any further headway may be taken negatively and traders will be eying the market for possibilities of a late sell off if we are still at the current levels later in the day.

Gold (as mentioned) seems to have finally decided that the sell off has done enough. Yesterday saw strong price gains and as mentioned in yesterday’s comment the breach of the 1098/1104 resistance saw a sharp move higher in the early hours this morning. We are now at 1115 and looking reasonably comfortable for the time being. For the bears in all the markets the hope must be that the moves of today and yesterday are of the dead cat bounce variety but it must be mentioned that the extreme pessimism of last week failed to result in any further pressure to the downside in the equity indices, the commodity market or the bond markets. The lack of any follow through on the Jan/Feb falls is encouraging the buyers and it would be foolish to stand in the way just at the moment. Gold will be eying the last bull move peak in the mid 1120’s and then (ever hopeful) the resistance that foiled any rallies in January between 1145 and 1160.

Oil is following the other markets but is still under the talismanic 75 buck level at 74.85 having peaked at 75.25 early on. In truth it is difficult to be too bearish of the black stuff as one has to imagine that demand is straining the supply capacity but… we have been saying this for months/years and we are still bashing around the 60 to 80 dollar level (albeit having hit 147 and 34 in the last couple of years). Supply capacity seems to be increasing as well as problem areas start to come back on line (Nigeria and Iraq) and over and above everything is the ‘oil sands’ issue of massive deposits which become economic above about $55-60 a barrel. While the peak oil argument is very valid oil is a consumer item price based on current availability. Unlike Gold, it is very expensive to store for some future date when the black stuff will undeniably be scarce. So until such time as demand actually does overpower possible supply talk of 100 then 200 bucks a barrel is likely to be frustrated.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.

Market trading ranges are getting tighter and tighter at the moment with the FTSE bashing around between 5120 and 5185 (approximately). In fact the index has retraced this range no fewer than nine times in the last four trading sessions.

This morning does not look much different with dealers buying up to 5190 in early action from pre market levels of close to 5140 only for pressure to start to fade and sellers to emerge once again. The move this morning was prompted by the European markets which are climbing on rumours of yet another deal over the Greek crisis.

The problems for the EC have been well posted now and no matter what the political masters come up with it will almost certainly be fragile in the extreme. If a populist party in the north campaigns on the platform of no bail out for the south and wins….. then the whole edifice could fall apart. Not only this but Greece, and Spain, are going to be asked (forced) into making stringent demands of their citizens. Demands that look pretty reasonable to the North (retirement age, public sector pay cuts) but will almost certainly doom the political parties that propose them.

Trading has been very strong from our clients over the last few weeks as volatility appeared to be re-entering the markets but last week seems to have put a solid kybosh on this surge of spirits. We can hope that the various crises brewing across the globe from budgetary (Europe) to currency (China) and on to trade imbalances and possible trade restraints (China again) will add a bit of spice to proceedings but in reality we can almost be assured that a solution to all these problems will be cobbled together as all parties involved have too much to lose if things get out of hand.

This may mean that the rest of 2010 sinks into a very boring controlled trading environment which (if true) would prove to be very remunerative for day traders.

As mentioned the FTSE is currently trading at the top of its recent trading range at 5180 likewise the Dow at 10130. The dax is still struggling to make much headway but at 5530 is still at the bullish end of the current spectrum rather than the bearish.

In the currency markets the Euro continues to flirt with the lows underneath 1.3600. The situation for the currency does not look particularly rosy at the moment with (on the one hand) a bail out of the PIGS causing a devaluation of the whole currency through the massive effect of throwing vast amounts of good money after bad and (on the other hand) the more drastic variant of allowing the Greeks to sink thus risking contagion that might cause multiple sovereign defaults. To be fair, as there is no remit for the ECB to come to the aid of any one country, the default of Greece et al may not in the long run harm the currency quite as much as a never ending blank cheque. Unfortunately most of the debt is owned by financial institutions across the globe (pension funds, insurance funds, banks, sovereign funds etc) the sudden failure and default of all this debt may well cause yet another financial crisis. The various combinations of whatever decision is finally made will live with the EU for possibly decades to come.

In the absence of the US markets due to ‘Presidents’ Day’ it would be stretching things to suggest that much might happen in today’s session but stranger things have happened. In general if there is a break out in European trading, missing out the Americans, markets have an uncanny knack of reversing the move in subsequent sessions so there may be an opportunity for contra traders at the close this evening.

Gold bounced off the 1076 support again on Friday and has rebounded up to the current price of 1096. There is some resistance from 1098 up to 1104 which may put a lid on activity for the moment but a break of this would encourage the bulls to attempt another go at 1125 and higher. Unfortunately for the longs even though we have confirmed the support at 1076 there is still the fact that the long term moving averages are starting to turn neutral for the first time in many years. The weekly 20 versus 50 time slot charts are still very far apart (historically) and a contraction of these is really needed to get the bull move going once again (i.e. we are still overbought).

Oil is having a very peaceful start to the week having given up on the plus $75 level last week but also rejected sub 72.50 as well. There appears little to go for in the short term and Inventories releases on Wednesday/Thursday may be required to get us moving. In the meantime the price action remains random within the ranges.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.

The European Dream is being tested to its core. The cost of such a bailout will take years if not decades to recover from. We’re not just talking about banks anymore, but countries that in the past few years have spent and spent and spent. The PIIGS have to achieve the near impossible by reducing their deficits whilst at the same sustaining growth and expanding. Such drastic measures are the civil unrest that we’ve had a little taste of so far will most likely augment.

The lack of detail in any bailout will over serve to further shroud the markets in uncertainty and volatility is likely to continue. Weakness in the euro continues this morning with investors favouring dollars and even pounds.

The appetite for risk however hasn’t dried up and investors continue to focus on corporate earnings which on the whole remain unaffected by the headline news. The recent correction in equity prices is offering up some cheap(er) stock and bulls have been adding to their long positions. So far this morning the FTSE is putting in a decent show back above the 5200 mark some 45 points to the good.

The little bounce we’ve seen recently will be tested around these areas as many markets and individual stocks that have dipped below crucial moving averages are now testing those levels in an attempt to break back above them. These areas often give resistance and the next few days will see if the appetite for more exposure to equities is enough to drive us back up above these moving averages or whether there’s more room for a move to the downside.

The breakdown of the upward trend would suggest that the upside is limited, but we can’t rule out a push to test January’s highs. Clients had a good run of it yesterday riding the move higher and have taken profits this morning. For now they remain a little undecided.

Economic data is a little thin on the ground today with a smattering of GDP numbers from the euro zone and already we’ve seen a worse than expected number from Germany. This number could lead to a weaker EMU figure at 10am this morning which is expected to come in at 0.4%.

Later in the day we have the University of Michigan data from the US which is due to come in a little higher at 74.7, but don’t be surprised if this too disappoints particularly since equity prices have come off so much.

The currency markets had a roller coaster ride yesterday as we waited to hear exactly what form the Greek bailout would take. EUR/USD hit an intra-day low of around the 1.3600 just as it did last Friday before bouncing in anticipation of the EU sweeping in to save the stricken Greeks. We can safely say that 1.3600 is strong support for now and we can’t rule out a bear squeeze that was attempted on Tuesday only to fizzle out.

The bailout talk has put pressure on the dollar and that’s translated into gold strength. On top of this there will always be the safe haven attribute to gold that’ll keep it supported and with half the euro zone being brought to its knees investors will be attracted to the precious metal. Gold made a surge later in the day and nearly reached 1100.0 but is taking a breather this morning. We’re at the upper end of the small up trend that’s formed and resistance is seen around 1100.

Crude put in a good show as well after a see-saw with better than expected jobless numbers sending us higher at first, higher inventories reversing gains and then dollar weakness towards the end of the day lifting us over a buck higher with risk lovers extending long positions of the black stuff. With Nymex at $74.65 this morning the next resistance is seen around 75.75.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.

Back from the brink could be the message from Friday as markets teetered on the edge of meltdown, only for a late US rally to put a hand out to pull us away from the abyss.

We have had the ‘banking’ crisis now we are entering the sovereign one. Reading the comment from various political forums from the UK across to the G7 meeting the emphasis remained the politicians favourite response ‘tax it’ to solve the problem. Why we continue to believe that politicians should be able to come to any sensible conclusions beats me. Their prime focus continues to be ‘get re-elected’ not make sensible or prudent (remember ‘Our Gordon’s favourite word) hard decisions. This twin burden has meant that many countries continue to just spend money in the ‘hope’ that something will turn up and only in absolute extremis will the ruling administrations actually do anything.

The G7 have met and just about the only solution they can come up with was the very easy political one of taxing the banks more. Sounds great until you realise that this (on top of the huge regulatory burdens being imposed and the heavier capital requirements added on) just means less lending, slower growth, in fact just about everything guaranteed to send the Western economies back into the mire. Banking might not be everyone’s favourite sector at the moment but the fact remains that the West’s pre-eminence was built on the back of it. Our politicians should start to gain some back bone before the easy banker bashing pronouncements go too far. Quite how taking more money from banks will make the financial system safer (!?) quite eludes this commentator.

Markets look to be opening slightly on the side of the angels this morning with the FTSE called at around 5085 having hit a low of 5015 in after hour’s action on Friday. There is solid support below 5000 at 4980/90 and 4940/50 from the twin sell-offs in October and from resistance in September. If we break these levels dealers will be eying the 4300 to 4500 range which dominated early summer. But this is probably a tad ‘dark’ for now and buyers seem happy to top up holdings at the new lower levels. Resistance to the up side is at 5100 (naturally) and up to 5125. Above here there is another resistance at 5140 and if this is broken we may see a return to the old 5180/5350 trading range.

The US markets are acting in much the same way (as might be expected) and in the S&P 1100 and 1150 seem (in hindsight) to be critical levels. We battered against 1150 from the 10th to the 20th Jan without success and since falling below 1100 we have had the same problem in achieving a closing foothold back above 1100 even though we have managed to trade intra day higher. This continued failure to make new highs is beginning to sap confidence.

Gold made a new low for the year pulling us back to the minor support level at 1045 before the same rally that helped the Indices came to its aid. We are now at $1068 but overnight activity has been very muted and we are very much stuck between 1065 and 1070 at the moment. All eyes seem to be on the Euro as the direction of the Eurozone currency appears to be dragging the Yellow metal around with it. Unfortunately for the Gold bugs the Euro is becoming something of a whipping boy as speculation abounds over what the Germans are going to agree to re the PIGS debt problem.

The G7 pronouncements on the Euro problems appear to indicate that some rescue is in order but the currency seems not to know whether this is good or bad news. The temptation to just bail out Southern Europe is strong but the Germans have indicated that, in the midst of the economic downturn, they (nor their voters) have any appetite for bailing out the profligate ‘Garlic Belt’. They feel (as do many others) that the law abiding, on the tax paying front, are being asked to put their hands in their pockets to fund the massive tax dodging and graft endemic in Spain, Italy and Greece. Unless these nations pass real laws (and enforce them) to actually collect the tax share of the vast black market revenues and also make the budget cuts required then we may find the purse strings will remain firmly closed.

Sterling on the other hand remains weak for all the right reasons. Poor economic situation, appalling budget position, weak administration all add up to a nasty stew. The resurgence of the Dollar has left the poor old pound rather exposed and we really need to regain the 1.5700 support other wise the 1.4400 to 1.5400 range looks enticing.

Oil had a heart stopping moment on Friday as a huge stop order was triggered at $72.50 taking the market down to $71 odd in just a couple of seconds and then all the way down to $69.50 in just a few minutes more. We are now at 71.50 and the market remains fragile and prone to sharp moves in either direction (it was only last week as well when the market bounced off 75.50 to rally up to $78.00!). Not a market for the nervous and one to play with extreme caution.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.