So Mervyn King is optimistic that The Bank of England’s Quantitative Easing program is going to project us into a sustained period of growth over the next three years and in 2011 even hit the peak in output that we saw at the beginning of 2008. Sorry for not joining in with the Bank’s sanguine outlook, but maybe they’re not reading the same forecasts that I am.
I almost feel that the BOE has been so cautious and rather gloomy in the past that they woke up yesterday morning and thought “ah, it’s not raining today, so I’m more positive about the future”!
There’s no question that the last GDP number released by the UK, which was weaker than expected and showed us to be still in a recession, will most likely be revised up at the next reading as the UK PMI data suggests that GDP should be in positive territory. But this doesn’t mean that growth will be as sustainable as the Bank expects. Next year will not be a walk in the park with taxes rising (starting in January with the VAT returning to 17.5% and even possibly rising to 20%), public spending being cut back and unemployment continuing to rise. Basically, we’ll all being paying more for less.
Then we through a general election into the mix and a possible change of government which will possibly lead to more drastic changes. Net/net I’m not as confident as our Bank’s Governor, but then that allows one of us to be wrong!
The FTSE this morning started with some buying right from the open as we were calling it to open a little lower but in early action much of the gain has already been given up. Yesterday saw the index fail three times at the 5300 level which is not good from a technical point of view and clients have been selling at these levels expecting the market to drift lower once again.
The markets seem to have been trending slowly upwards and upward trend lines have regularly provided support. There was a break lower towards the end of October and we even tested the support offered by the 50 day moving average, but once again the bulls have managed to hold the ascendency. For now though the FTSE is wary of the resistance to the upside and we seem to tracking sideways for the time being.
The economic data for the remainder of this week is thin on the ground and today’s focus will be the weekly US jobless number. This is expected to post a small decline once again, indicating that the US jobless market is going in the right direction with continuing claims also expected to fall, but it seems detached from the bottom line as we saw last Friday with NFP worse and the rate of unemployment spiking.
Later in the afternoon there is API oil inventories and some speeches that might be worth keeping an ear out for with the US Treasury Secretary Timothy Geithner speaking and ECB’s Trichet later this evening.
The currency markets are broadly eurozone weak with the dollar making ground against the euro and sterling, but giving up some ground against the Yen and Aus dollar.
Oil is flat to lower and still seems to be shy of making a run towards $80 again and gold is also just off its highs.
The markets seem to be in a state of flux for the moment, waiting for the next catalyst and almost every asset class hovers around its highs. Momentum is still upwards (except for the poor old dollar!), but resistance is capping gains for now.