Markets were called higher and, on the off, duly delivered. All the major indices though are still under the highs of September with the FTSE still struggling at the high 5100’s the Dax unable to breach 5760 and the S&P, after putting on one of the best weeks on record, is STILL under the high of last month! If we break higher the move could be quite violent but for the moment our clients still believe that these are the highs and are selling (rather too aggressively for my tastes).
Phillips has come in with a profit (expected to be a loss) which has boosted the bulls but we are not expecting too much info out of the UK today and must wait until later in the week for some corporate boosts or brakes. Whitbread, Bellway, Burberry and Experian in the next couple of days.
While the performance of Whitbread et al will be of interest the numbers (and in particular the detail) from Experian will probably be the closest watched. As an indicator of loan activity the data from the credit checking organisations is probably as good as it gets in terms of current activity. If Experian tells a great or grim tale then we will have to listen.
The news over the weekend was, again, pretty much two-way with corporate news still trundling into positive(ish) territory but the overall domestic situation clouding over day by bay. The various political responses to the looming crisis in public finances seems somewhat wide of the mark. A billion here, a billion there, all sounds very ‘hard man’ in the press. Unfortunately we are looking at a deficit of some 170 Billion this year and, probably, not much less next. Snipping around the edges in the hope that an economic upturn arrives to save our nuts does not seem tough to this commentator. No doubt the money will have to come from somewhere but with an election just around the corner all the real harsh decisions will be delayed once again.
Sterling is drifting ever lower this morning versus the Euro and Dollar although the moves over the last few days do seem to be more of a dollar bounce than a Pound trashing exercise. The weakness in the Dollar of recent months has called into question the US’s desire for a currency stability and investors in dollar debt have been squealing ever more stridently. The Fed gave one or two minor pointers that it was happy at the current levels which was probably more of a sop to the Chinese and the Japanese rather than a serious change in strategy just yet. The Chinese government’s issuance of domestic currency bonds to sop up some of the huge currency inflows might be the first in a series of shots across the bows for the US administration to stop exporting financial problems. If the Far East economies did, finally, take a strong stand then the Dollar would collapse this makes such an action extremely unlikely at this point as it would damage both their debt holdings and their export markets. For all of the talk of the declining power of the US economy we must recognise that it is still (and will remain so through most of my life time) the biggest beast in the arena. And this is even if it remains in its current economic incarnation.
Clients are still trying to call the bottom for the pound but this morning’s weakness has damaged quite a few accounts. Cable has dropped through 1.5770-90 major support and immediately smashed down to the low 1.57’s. Versus the Euro we are also through heavy support of 1.0750 at 1.0720-1.0724. If we do not regain the support levels by the close of this session the writing might be on the wall for a possible attempt at parity versus the Euro and a return below 1.50 for the Greenback.
Oil is at the highs for a while but 72.50 seems (for some reason) to be a tough nut to break. Above here 73.20 is the obvious target but the pressure does seem (as mentioned last week) to be to the upside. A failure from the indices to hold the highs might be taken as a selling indicator but for the time being the longs have it. $75 is still the OPEC target so this will also act as heavy resistance as we might expect quite a bit of producer selling at this level. Clients remain traders of the range set up over the last five/six months (66/73 roughly) and until this is mind set is broken this will probably continue to be the trend.