Financial Gossip

A very quiet weekend on the financial side, so traders are finding few reasons to smash the markets once more, this morning.  Not only this, but the US is also off for its Independence Day celebrations, which is likely to make this afternoon’s session particularly boring.

Traders are slowly buying back into equities, having battered the lows to no great effect through Thursday and Friday. The Non-Farm Data was as grim as expected, and there is a small feeling of “sell the rumour buy the fact” going around at the moment.  Interestingly, while the press and trading floors worry ad-nauseam about a ‘double dip’ recession even the most bearish of economists seem not to agree.  Yes, we are probably not going to roar out of the traps, and recent data has shown that huge debts do have to be paid back in hard work for little return, but this is a long way from an actual slowdown.

For the UK, the big crutch for public confidence has always been ‘property’ and this is possibly our weak spot.  Outside of the racier bits of Central London, the spike from the lows of 2009 seems to have run out of steam. Sellers are not willing to reduce prices, but buyers are unwilling to pay up (and banks even less willing to accept over-valuations).  In conversation with a developer, he was moaning that the only sales that seemed to go through were forced actions – divorce, death, relocation or redundancy, where the sellers were willing (under duress) to come down.  With the Public Sector likely to become a net-shedder of jobs over the next three or four years, the supply of new buyers onto the bottom rung is liable to be a tad thin on the ground.  As house activity tends to feed down into the rest of the economy we can foresee, if not weak demand, then certainly subdued activity.

This morning sees the FTSE, almost unchanged at 4835, having attempted a move higher, already reaching 4860 in early action.  As mentioned earlier, there is not much activity going on at the moment and this is unlikely to change today.  It is always difficult on days such as this to try to speculate on the coming session, as sometimes the lack of liquidity creates big swings and on others trading floors just give up the ghost and we drift through the day.  With the trend definitely bearish at the moment, the easier direction to cause a panic would be down but (on the other hand) there are probably a goodly number of weak shorts out there just begging for a short squeeze to push them out.  With the sun shining brightly, the bars around the city will probably be the only winner in the end.

Currency markets are similarly moribund, with most crosses hardly moving so far.  The Euro/USD has had a thrilling 40 pip range since opening at ten last night (FX traders East of here across the world must have had one of the most boring Sunday Night/Monday Morning sessions for months). The Euro has recovered above the 1.2350-1.2450 level and even reached 1.2610 on Friday, as shorts were mercilessly squeezed into submission. This morning it is drifting marginally, but seems unable to fall below 1.2520/25.  We are seeing buying at this point, but traders are putting very close stops under this mark as well.  If the cross pushes below 1.2520, we may see renewed weakness, but for the time being the bulls seem the more confident.

Sterling has likewise recovered versus the Greenback, and we have finally made it back to the pre-election levels (we closed at 1.5095 on the 5th May).  While this is all very nice, it does have a feel of markets moving in a particular direction simply because they can’t think of anything else to do. 1.52 has been (pretty much) the median/mean point since the pound fell out of bed back in late 2008, even the mid-point of the low high since then (1.35/1.70) is only a few pips away at 1.5250.  The disappointing activity has been fact that the pound has been drifting against the Euro in recent days, falling from a high of almost 1.24 down to the current price of 1.2100.  The one major factor in the UK’s favour is that its problems are solvable by itself and the country can determine economic policy to suit itself.  Spain, Italy, Ireland, Greece etc are stuck in a monetary straightjacket that is controlled by stronger economies (Germany, France, Holland etc); for them the future appears bleak indeed.

Oil continues to fall from the high 70’s and the ease with which it fell through 75, 74 and 73 bucks down to the current price of 72.30 bodes ill if further poor economic data comes down the line.  There is support at 72.00 and 71.60, which may hold depending (really) on other markets, but one does begin to worry about the cost of continual long trades given the calendar month rollover costs.

Gold made a spirited attempt at $1200 on Friday, but the knowledge that the 1196 support had held so effectively on Thursday probably weighed on the minds of the bears. This morning there is very little to go on with the metal unchanged on the session. Support is (as mentioned) at 1196, but there are a wealth of failed attempts to break lower in the 1200/1215 range over the last month or so, which may give the bulls the strength to attempt to regain the initiative. A close back towards the high teens may be all they need.

This article was written on behalf of Capital Spreads. Please click here for more information on  Spread betting or Trading Platforms.

Investors and market commentators are concentrating on the recent data out of the US and China and coming up with doom-laden prognoses.  Readers will note that many of the reasons cited for the recent falls were commented on by us well beforehand.  While I am not an outright bear on the economy, this does not mean that investors fear will not drive the markets further than common sense would indicate. Yes, US data is looking weaker, but we must compare this to the slightly suspicious levels it was apparently being reported at for the 4th Qtr 09-1st Qtr 10. Virtually anything is going to appear grim against that.

The performance of the FTSE for the 2nd qtr 2010 is apparently its worse quarter since 2002, which is something of a surprise, as most would have thought that some periods in 2008 would have given it a run for its money. Yesterday’s failure to make much headway probably also had a bit of ‘half-year-enditis’ about it.

This morning sees the FTSE called some 85 points lower, after US and Far East traders decided that discretion was the better part of valour. Our quoted low overnight even managed to reach the low price of the Fat Finger event back on the 6th May, which should please the chartists amongst us. Equity yields are looking ever more attractive as inflation fears decrease (at least amongst Central Banks) and cut expectations of near-term rate hikes. The UK looks likely to be stuck with sub 1pc base rates for some time. On the lending note, the brief rally yesterday on the announcement that the ECB was ‘only’ being called for some €160bln 3mth lending was strange indeed and our dealers were perplexed as to how the news that a huge number of banks were still being forced to borrow at 1pc (money rates for €3m ae at around 0.75pc), due to lack of borrowing facilities in the open markets could have been considered ‘good’.

For those of you looking for a major blow out or a confirmed double-dip recession, I fear that the wait might be quite a long one.  Things are difficult, but we should remember that most economists and analysts are still reasonably optimistic about future direction.

Not only this but the ‘Canary in the Coal Mine’ products like Long Term gilt prices and Gold are stubbornly refusing to push higher. It appears that not every financial sector is quite so terminally pessimistic.

This said, we must obviously take into account the current bear sentiment and not get too aggressive in any direction. We always say that if you want to make a £10 bet, you should actually just do £5. In the current environment, we would advise you to cut this even more.  As mentioned the FTSE hit the previous quoted low for the year and we see this as possibly good support, as are the lows of yesterday around 4830/35. But the next major target for the Bears would be the 4695/4700 failure levels of Nov/Dec 08.

On the currency-side, the Dollar is naturally gaining some strength as woes over global markets rear their head again. The Euro still seems reluctant (though) to trade much below 1.2200 and the Pound is likewise seemingly not keen on giving up too much of its recent gains.  Cable is now at 1.4890, with traders buying into the move lower obviously hoping for a retracement to the 1.50 level. There is good support at 1.4885 from the short-term bull trend line and then at 1.4855 from previous lows on moves down, but traders should beware a break below these as it may signal a return to Sterling weakness.

The Yen remains the strong man of the majors, which appears slightly odd given the country’s fiscal position and the Euro/Yen cross is still flirting with the nine year lows around the 108.00 level. We have had several attempts over the last three days to close under this mark but, even with an intraday low of 107.25, last gasp moves have always regained the level. This morning we are once again below 108.00 (just) and it will be interesting to see whether a close can be achieved below this point.

Gold remains near to its all time highs (1264) at 1240, but the woes of the equity markets do not seem to be, as yet, triggering another surge in the yellow metal. We seem to be trading around a mid point band of 1238.5-1240.0 either we are in a small range just above this or just below it and then remain in that range for hours at a time. Attempts higher are swiftly defeated, but the same can be said for moves down as well. A bit trite, but we are probably looking for a break of 1246 or 1234 to give us a bit of excitement.

Oil has finally started to show some reaction to the perceived possibility of another slowdown. Slower growth with increased production means lower prices. But we will really need some real economic data to send us significantly under the 75 dollar level, which was finally breached earlier this morning.  This is the one market where we might expect price action fireworks in the near-term as a recovery in equity market sentiment might send us swiftly back to the 80 buck level, or continued pessimism may put heavy pressure on longs and force us back to the 68.50/69.00 support.

This article was written on behalf of Capital Spreads. Please click here for more information on  Spread betting or Trading Platforms.