February gets off to a tentative start, and this morning Asian markets have just about recovered from their lows allowing European indices to open flat to just negative.  We were calling the FTSE 100 to open some 30 points lower overnight, but gradually as European indices woke up, a little bit of buying has crept in.

Now some 9% off its highs of the year, bulls will be very tempted to jump back into the market.  The pull back to here represents a similar move when the market had its first correction back in June/July last year, after the lows formed in March.  The 5100-5150 area is also a 23.60% Fib retracement of the move from March 2009 and last moves high.  On top of this we are neatly sitting on the low of the upward trend line so lots of technical indications to suggest that these levels offer value.

February has historical been very much a mixed bag for the FTSE 100 with gains and declines being just about 50/50, but in all the gains being greater than the losses on average.

As we saw towards the end of 2009, as markets failed to really be enthused by good economic data, sentiment has definitely been shifting towards good numbers being bad and bad numbers being good.  Western economies have managed to drag themselves out of recession with the assistance of a serious drug overdose and the recent correction has been fuelled by the fear that when the stimulus stops, coming off our high will be just as bad a shock to the system.  A double dip recession cannot be ruled out; particularly since here in the UK we’ve only just recorded meagre growth a long time after our neighbours have.

Markets will watch with interest the UK’s PMI manufacturing numbers at 9h30 this morning, which is expected to show a mild decline, mainly down to the dire weather conditions we’ve had recently.  As mentioned though, small declines in these numbers will most likely be welcomed by the market.

Later on the US releases personal income and spending numbers at 13h30, which should look healthy after Friday’s surprise GDP numbers, but the focus of the day will most likely be the ISM manufacturing number at 15h00.  This report is expected to continue to show expanding activity, albeit a small decline from December.

The dollar’s bounce is on hold this morning, with the euro making modest gains against the greenback.  Sterling is suffering from a bout of “hung parliamentitis” as the prospects of no overall control for a particular party weighs on the currency.  The pound has seen some good gains in the last couple of weeks, despite a great deal of negative sentiment towards it, but as the General Election becomes nearer and if the polls continue to narrow, investors will not be happy to hold too much sterling.  For EUR/GBP, a small upward channel has formed and we’re nearing resistance at 0.8750, beyond which resistance is at 0.8775-0.8800.

Gold is just a little better, benefiting from the euro’s small bounce, and the 1075-80 area is holding up for now.  This also provided support for the precious metal back in December but a break below here will show the commencement on lowers highs and lower lows, which could open the way for a test of $1000.  Already we’ve seen quite a bit of unwinding of long positions, so it may not take much to trigger further selling and long position covering.

Brent is also just a smidgeon higher, finding support around 71.40, but it’s stuck in a downward channel, with a break above 72.50 and then 73.40 required to persuade bulls back in.