Our Gordon and his Captain have set the date for their last throw of the dice. 24th March will be D-Day for the current government as they spell out their plans for cutting spending and raising taxes to curb the budget deficit. Up until now Labour hasn’t done anything to curb government spending and the UK has been lucky to hold onto its prized credit rating. At least Greece and Portugal are taking action and addressing their fiscal problems now. The UK is facing a similar budget crisis to the PIGS and so far nothing has been done by our great leaders to deal with the issue.
In this respect the election is coming at just the wrong time as the politicians fear for their votes. If no action is taken now, then we can kiss goodbye to our triple A credit rating and our cost of borrowing will soar. This will mean higher interest rates for all, mortgages repayments will go up, debt repayments will be more costly and it’ll take longer to get our house in order.
The FTSE this morning is taking a breather after its good run higher yesterday. US markets failed to hold onto their highs and still linger below their January highs. Whilst the FTSE has just broken through its highs for the year its still in “double top” territory and assistance from US markets will be required in order to hold onto these levels. Clients continue to sell at these levels hoping for some profit taking and a move to the downside.
When we’ve seen declines in recent weeks they have been very short lived, with bulls continuously lifting us back off the lows. The run from the beginning of February has been impressive and has rarely looking like running out of steam, until now. Major resistance is seen just above these levels, so the 5675-5700 area is expected to keep a cap on gains and with the lack of anything major on the news front momentum just seems to be losing steam. We are flat on the week thus far, so a little consolidation period means investors are asking the question “should we be up here”?
The end of the first quarter is just round the corner and we can’t rule out some window dressing with bulls pushing markets higher, but they might also think that the gains made so far are enough and bank some profits.
Economic data is thin on the ground today with the usual weekly jobless claims from the US at lunch time, which can sometime influence the direction of indices.
Currencies had another volatile day yesterday with cable looking like it was going to fall out of bed again until it found enough support at the 1.49 figure. Sterling might find some support between now and the 24th March, as investors wait to see exactly what Captain Darling has to say about the budget deficit. We weren’t helped much by the poor UK industrial data yesterday, but the weather can be blamed for much of the decline and a rebound is expected in later months.
The euro has also found support and stopped the bleeding as all the right noises (apart from the calls for bans on shorting) are coming out of Greece and Portugal. EUR/USD has continually bounced off 1.3550 and this has lead to recent weakness in gold.
Gold took a turn to the downside yesterday as investors seem content to keep the euro propped up for now. Any euro strength at the moment is causing gold bulls to sell the precious metal and now we’re around 1107.
Oil inventory data caused a roller coaster ride for crude yesterday with traders initially sending prices sharply higher as the stock build was less than expected, but then the speculators dried up as the bears drove us back a buck and a half. A stock build is a stock build and even if it’s less than expected it means all the more oil sitting above the ground ready to meet any pick up in demand, which as yet still hasn’t materialised in Western economies.