Excitement out of the Far East as China’s economic numbers give rise to hopes that the ‘US effect’ which has dominated the last 60 years might be replaced/augmented by the dominance of the Asiatic regions.
For most of my working life the phrase that ‘when America sneezes the rest of the world catches a cold’ has dominated growth prospects. While China has many years to go before gaining such hegemony over the world economy it is actually comforting to know that there is another powerhouse waiting in the wings to join the US in driving global wealth forward.
The numbers from China showed a huge boost both in exports and imports and the immediate effect has been to push virtually every index to new highs with the FTSE looking to open at 5560 and the Dow (finally) shaking clear of 10600 and now being quoted at 10649-10652 in early action.
This week is particularly weak on the UK economic update front with just a few numbers on Tuesday and Wednesday to excite. Today sees nothing from either the UK or the US so (as with most days like this) the speculation will turn towards a continuation of the underlying trend (in this case upwards). When there is little to go on markets have a habit of just following the most recent direction and with the indices at new 15 month highs the bulls definitely have the bit between their teeth. Traders will be eyeing the 5560/70 minor resistance level but as mentioned last week the target for the up side is the major 5650 level which proved decisive back in Sept ’08.
On the downside with the last four sessions having inhabited the rather constricted region between 5500 and 5550 (approximately) it does not take a genius to conclude that 5490/5500 might prove crucial to the bulls hopes for a continuation of the rally.
No major company numbers today so individual equity prices will probably be driven by their usual mixture of hope, greed and fear. The Cadbury saga continues to lumber on but it is not actually this story that might be significant. It is the underlying shape that is beginning to emerge that could be important. In the mega merger days of the past a takeover of this size would have had bids and counter bids shooting off all over the place. In this instance nobody seems willing to get into a takeover war and banks are certainly not willing to be seen to be lending extravagantly on such a basis. If this is a new reality then the expensively built M&A divisions of the investment banks might be in for a rather longer deep freeze than they might have hoped for.
Currency markets have taken the o/n news as being essentially dollar negative but to be honest it is difficult to understand why this should be the case. Sterling has reached 1.6135 in early trade but sellers are waiting in the wings and we have been driven back down to below 1.61 as I write. The pound remains stuck in the same old range of the last seven months (roughly 1.5800 to 1.6800) versus the dollar and punters with deep pockets are doing fine playing the range. On the upside there is good resistance at 1.6140 and 1.6165 with 1.6250 being the major block. On the downside there is heavy volume support between 1.5930 and 1.6030 and rising trend support at 1.5910 but the obvious target for the bears is the seven month lows at around 1.5750.
The Euro has also managed to pull out of its recent lethargy and is holding steady versus the Greenback as well. In fact we are at one month highs at the moment with the cross trading very close to the 1.4505 support whose failure caused such a fall out back in mid December. A close today above this mark would possibly prove the push to help the cross higher once again.
Gold smashed straight through the 1141 resistance mentioned several times last week but only out of trading hours. We failed repeatedly to pressure the resistance level on Wed through Fri last week only to open above 1150 on the Chinese news this morning. There is small resistance on the upside at 1161 but the bulls are likely to be going for more. On the downside there is the big gap now opened up down to 1140. Even in the huge moves for the Yellow metal of the last few years there have been very few ‘gaps’ in the charts and so this might prove to be an irresistible attraction for the sellers.
Oil is at new highs once again and (as mentioned last week) the bulls seem to have the upper hand here as well. 83.60 in Nymex seems to be something of a barrier to buyers and we may sit just beneath here in the morning session. The mid eighties have not been a well travelled area over the last year or so. In fact on the way down in Autumn ’08 we shot through from $90 down to $60 hardly touching the sides but there were one or two points of reference, 84.80 being the most obvious. Bulls will be eyeing this and then 87.00 and 90.25