So the EU comes riding over the hills to save the Greeks and the Euro screams skywards. This commentator is a tad embarrassed, as I was having a meeting with a group of journalists on Saturday and was asked for my personal favourite ‘bet’. I plumped for a ‘short’ on the Euro! I suppose that, at least in my defence, nobody could have actually acted on my miscalculation before the markets next session opened in the early hours of this morning!
Fortunately, I am managing to miss virtually every election broadcast as mind-numbing regurgitation of complete irrelevances tend to get you down after a while. All three parties are campaigning away very energetically; I am surprised they can move at all, while ignoring the elephant in the room, which you would have thought was taking up all the space. The UK’s fiscal position is actually worse than Greece’s and yet we do not hear a single sensible policy idea as to how to solve it. All we get is some waffle about efficiency savings and fiddling around with NI. We all know that there are going to have to be heavy public expenditure cuts across the board and the experience of Ireland is probably the most relevant to this country i.e. salary cuts for all. Unfortunately, politicians obviously feel that treating every one as an idiot is the best way to gain votes. One wonders how far you could get in politics in this country if you were actually honest with everyone (in reality, the spin doctors are probably right and the vast majority of voters are indeed ill-educated fools).
Anyway, this morning saw a bit of a rally on the off on … umm … err … nothing that I could get my teeth into and we actually had a pop at 5800, before the weight of profit-taking drove us lower. Clients have been quick to build shorts in early action, and we are seeing considerable bear position strategies out there. An early rally and failure at an obvious resistance level is usually a nice little earner for the day traders and today looks to be no different.
Virtually every asset class is pushing at highs, currently with the exception of the bond markets after the politicians decided that, once again, the best solution to a problem is to print more money. The EC has promised to lend some €60bln to Greece but, unfortunately, they will need some €130bln over the next year or so. Unless Greece can tap the markets economically (i.e. at under 6pc), then the EU will almost certainly have to send more money after this in nine to 12 month’s time (possibly throwing good money after bad).
Precious, Base Metals and Energy products remain firm, at or near to the recent highs, and these will not exactly be aiding the attempts of the Western economies to drag themselves out of the low growth scenario currently holding sway. The continuing problems of a draining of wealth from the West to the Far East seems to have no credible solution as Europe, the UK and the US continue to pursue policies that build on future tax burdens, with very little thought as to how we will pay for it all.
The Euro has now recovered the losses of March, when the Greek saga gained sway, and the markets are now hunting down and killing Euro shorts. Two days of movement have taken us from a low of 1.3280 to the current price of 1.3630, which represents the biggest positive move since Euro sentiment turned negative last December. Historically, 1.3650/75 is something of a support and resistance area, but traders will generally steer clear of the cross as movements are likely to be extreme, and random, as various announcements are made.
The pound has ridden on the euro shirt tails a little, with the dollar and yen seemingly being out of favour on the announcement. Long term … the propping up of fiscal ineptitude will probably be taken badly by the markets, but for now the sun is shining and dealers are happy to buy into the story.
The weakness in the dollar has not turned into another huge move for Gold, but the fact remains that the Yellow metal has finally broken out of the 1080/1142 (roughly) range. The immediate reaction to the failure of 1142 was good to see, as the squeeze was propelled by range traders getting out of positions. The high of the January rally was 1162 and we are now above this (albeit a bit nervously), if we can hold here then we should be able to move up again BUT … failure to maintain the bull-momentum would of course open us up for a shift back down to the old range.