Just for a change we can at least say that we did warn everyone yesterday.
We described the recent news as rather worse than that which caused the markets to take a tumble back in May and June and investors seem to have suddenly decided exactly the same thing. Things were not helped after Merve the Swerve echoed the caution of the Fed and we must hope that the various central banks are trying to just be slightly negative a wrong rather than positive and wrong. Commentators will generally forgive errors to the downside as the economy is doing well but, if the BOE forecasts 3.4pc growth next year and only delivers slightly north of 2, poisoned pens tend to be sharpened as articles pour scorn on the analysts.
Jobs data seems at odds with popular perception and one does worry that the numbers have been affected by companies with staff already on short hours merely employing temps as cover for the holiday period.
Late in the day, in the post session period after 21.00 last night, the US markets actually took an even deeper dive which took quotes for the FTSE down beneath 5200. This has now been reversed and we are seeing a wide range of ‘bottom picking’ going on as traders look to take advantage of cheaper prices this morning. Aggressive buyers should be slightly cautious though as this might be a small hiatus in a general downward move. There is no getting away from the fact that equities appear incredibly good value versus other asset classes but this has been the case for a while now but bonds and swaps have just continued to increase the gap. We now have the situation of the 10 yr Gilt yielding less than inflation, not unusual when inflation was at 6,7 or 8 pc and likely to fall but certainly odd when it is ‘just’ 3pc and forecast to hold steady.
The FTSE is now at 5250 up a few points on yesterday’s close (having been quoted as low as 5171 last night). As mentioned we are seeing heavy buying across the board from our clients in a wide array of equities as traders try to ‘pick up a bargain’. A bit of caution should be exercised though as unless we get some momentum going there is a chance of a continuation of the falls. We are now back at our comfort level of 5250 (as long term readers will know this was our ‘tongue in cheek’ forecast for the year end back at Christmas last year) and the further the year goes the more ‘guru like’ we appear. We can see support at 5165 and minor resistance at 5260/65 but we are likely to see some quiet contemplation for the morning session as traders try to second guess whether yesterday was just a stupid over reaction panic or a harbinger of things to come.
Currency markets were just as mad as the equities with the Euro falling over 300 pips versus the dollar. While this was an aggressive move it can hardly be said to be surprising as the currency has had an extra-ordinarily good run over the last few months. Today is seeing something of a rebound and the cross is at 1.2925 now with a solid resistance band from 1.2945/1.3020. support is at 1.2835/60 and 1.2735/50.
The Yen is weakening this morning but again this is hardly surprising as yesterday’s move higher seemed rather overdone. The Euro/Yen fell 400 pips in the last two sessions as the Yen actually out did the US Dollar. 84.80/85.30 looks to be a move too far for the USD/YEN as each time we have a pop at it the reaction failure takes us back towards (and generally above) 86.00 and back in November last year 84.80 was also the low before moving back up to 95.00. Japan must be hoping for some relief soon from the never-ending pressure on manufacturing exports but in the short term it must be admitted that all the momentum is on the side of the Yen.
Oil (as feared in yesterday’s comment) really went for broke with the price falling at one point by over 3 dollars. While we have pushed back from the highs bulls will presumably not be too disheartened as the long term trend since Feb 09 remains upward. It must be admitted though that momentum has been lost over the last nine months and new highs are really needed soon (the next few months) to confirm the trend.