A bit of a pull back yesterday as the market reacted to eerrr… nothing very much on the day…… but the combined weight of the recent data has been far more mixed than many would like.
Of real concern was the Purchasing Managers figure on Wednesday which was much weaker than expected and although the later oil inventories were slightly better this should not have been enough to out do the more important data.
The FTSE is some 180 from the highs now at close to the 5000 level and investors are probably worrying as to whether this is the precursor to another collapse! We did mention in this comment on the last day of September that October is generally not a happy month when things are murky. As mentioned traders have long memories and are mindful of other investors possible actions as well so the human reaction to sell off on the first day of the month was probably not so unexpected. At the moment we are worried but that is all, technically the FTSE could pull back a great deal further than this and still maintain its bull trend momentum.
The first support region is 4980 to 5020 where we are now, below here is 4930 to 4940 but the really important one is around 4780 to 4800…. This is still over 200 points away.
Our comments last week and earlier this over the Dax’s inability to get above the 5760 mark should have made clients who followed the chart a nice little packet and we are now 250 points away down at 5500. As with the FTSE the index is now in a support region from late August. A close below 5480 might worry traders as this could open us up to a move to the 5260 support.
Into the poor business environment the government continues to throw ever more costs and red tape onto companies and today sees the announcement that the City and West End business rates are likely to be increased by 40 to 100 pc. While this has been announced in the capital this phenomenon is likely to be repeated across the UK as rates will be fixed against valuations from one to two years ago (and from a different era business wise!). One hesitates to use the word incompetent but with landlord rates being forced lower because of the current environment the sight of the state applying a formula to justify the unjustifiable will tip ever more decisions to move companies out of the UK’s current business unfriendly atmosphere.
The pound is looking weak again in early action having rather easily given up on the 1.60 level yesterday versus the dollar and the 1.10 against the Euro. While the spike lows of Monday morning are still some way off (1.0750 on the Euro and 1.5770 for the Greenback) it is not unreasonable to point out that many dealers are gunning for a return. The Treasury’s income seems to be falling as the costs are rising and while the budget deficits of £175bln or higher might not actually materialise this does not mean that we are any closer to finding a solution as to how it can be reduced. Heavy issuance of Gilts, the eventual reversal of QE, the poor Trade balance (which is not reducing even in this recession!) and ultra low interest rates are all adding to the selling pressure. It is one thing to say that the Pound might be near to the bottom it is quite another to suggest that there is anything in the future that might suggest a serious recovery.
Oil has started to slip from the 71 buck highs of Wednesday and it appears that the price is just going to oscillate in the 66 to 72 range once again. Currently trading at 69.80 for the November Nymex there is a worry for the bulls that the sharp move higher failed (just) to make it back above the bull trend line (in place since February) that we broke down through last week. For the bears there is a similar worry that $65 again saw strong buying pressure as it did back in August. OPEC remains wedded to achieving $75 and any kind of economic strength would probably see the level. The question is whether this economic strength is actually going to appear. The best advise is probably the most obvious. Do not get involved in the middle of the 65/66 to 70/72 range but when one limit or the other is reached get in. Of course a tight stop should be in place just in case the Black Stuff actually makes a break out!
Gold, yawn, still stuck at 1000. Enough said.