Testing resistance this morning after a good session in Asia and just when the markets looked a little toppy we continue higher and clients continue to sell into the market’s strength.  Failure to sustain these levels will bring the “double top” scenario into play and many technical analysts will be calling for lower prices, but we saw similar price action back in May only for the market to provide pull backs which turned out to be fantastic buying opportunities.  Once again the 50 moving average has offered support and November has got off to a flying start.

Sainsbury have provided a positive trading statement this morning with profit coming in at the high end of estimates.  It’s a good improvement on their quarterly results which showed they were just seeing market share slip away with the likes of Tesco dominating, who are also higher in sympathy of Sainsbury’s numbers.  Whilst Justin King is still cautious about the outlook, this statement is much more optimistic and retail stocks look to be commencing their seasonal rally into December and the Christmas period.  Last week we saw Next and M&S provide good news and this time it’s the turn of the supermarkets all of whom seem to be adjusting to the current climate and still attracting shoppers through their doors.

The highlight of today is the BOE Inflation Report and UK unemployment numbers.  On the unemployment front the rate is expected to tip the 8.0% mark, up from 7.9% with the number breaking the 2.5m mark.  Unfortunately, equity markets are completely detached from the “real” economy, so as unemployment continues to rise (and is expected to continue rising throughout 2010) it won’t necessarily mean the FTSE won’t continue to rally.

The Inflation Report is expected to show that inflation will remain around its target of 2%, but once again this seems to be finger in the air type stuff as no one knows what affect the QE will have on the economy in 6 months time.  The focus will be on the outlook for growth and indications of when the stimulus will end.  Growth is expected to return for the fourth quarter, but with the VAT hike round the corner and further tax rises expected next year, it could be snuffed out in an instant.

Sterling was out of favour yesterday after ratings agency Fitch announced that the UK’s sovereign credit rating is at risk when compared to other top-rates countries.  It wasn’t a dramatic sell off as cable recovered from its lows as investors reflected and the consensus is still that, out of the MPC, ECB and Fed, the UK will be the first to move interest rates higher next year.

The dollar’s mild gains put a cap on gold’s advances, the price of which hovered around $1100. Whilst the price may have gone a bit too far too quickly, the trend is firmly in favour of the bulls.  But, the price has moved some 3% away from the 20 day moving average so any corrections could be aggressive and shake out weak long positions that have joined the party too late.  This morning gold is on the bid again at 1114.5 and overall clients remain bullish of gold, but at these levels we’ve seen some fresh short positions opening up.

Crude oil couldn’t hold onto gains as hurricane risks receded and dollar strength assisted in capping gains.  This was despite forecast upgrades to the price from both the US Energy Department and Credit Suisse.  Both forecasts point to higher prices through 2010 citing rising demand and falling inventories being the drivers (no rocket science there!).  Oil continues to flirt with the $80 level and not quite having the conviction to push on higher, but this afternoon’s inventory numbers could be just what the bulls are after to test resistance levels.