The indices markets are definitely tired, but are they tired enough for us to caution traders on the possibility of a retracement?

While we continue to hit new highs in the markets, the trading ranges are contracting considerably, with the FTSE managing just 40 points range in open action through yesterday’s session and the Dow just 60 points (if we are generous!). It appears that we are piling up just under resistance levels across the board, with the FTSE bashing at the 5775/5800, the Dax struggling at 6300, the S&P at 1200 and the Dow at 11000; all nice round numbers.

A break out in one would probably trigger a move in all, so the chances must continue to favour the upside for the moment, but I have to admit that while ‘fortune may favour the brave’, caution would appear to be the watchword for the moment.

Retail sales in the UK went off the scales in March, as everyone appeared to put their shopping shoes on, pushing sales up over 6pc. The high street continues to be where the UK population gets its kicks and one supposes that for the good of the economy as a whole in the short-term, this is essential. Unfortunately, of course, we continue to spend as a nation much more that we earn and a some point one assumes that this will have to be addressed (just not right now).

UK retailers seem to have gone off the scales in the last few sessions, but one does wonder whether they will be able to maintain the momentum once the squeeze starts in earnest from late 2010 onwards. At some point the government will have to stop ‘taxing the rich’ (as this is generally not just a zero-sum gain, but actually an exercise in ever-decreasing circles) and start to either cut back in state expenditure or raise the overall tax burden (income tax, VAT, fuel, etc, etc); this must inevitably lead to lower disposable incomes.

On the currency front, the Euro continues to hold reasonably steady versus the dollar, but the Greek induced rally seems to be petering out. Traders are wondering as to the ongoing strength of the rally, but are conversely not keen on selling much below 1.3570. A break under this might bring out short sellers again, it is a truism that ‘gaps’ in the market tend to be filled, and there is a gap from Friday’s close at 1.3495 and the current level.

Interestingly, the Pound seems reasonably happy as well, even though the current polls indicate the probability of a hung parliament. I still tend to waver towards a return of Gordon Brown as the lead of the Tories seems very fragile, especially considering that they should be miles ahead. Some 34/36pc of the UK workforce is directly employed by the state, and you could probably add another 10 pc to this number as being dependent on Government contracts of one form or another. In self- defence, these people would be more inclined to favour the Labour Party (plus all their usual voter base) and it takes quite a leap to believe that they will, at the death, vote against their own self-interests. Medium-term, this would be poor news for the currency, but even a Tory administration may be hamstrung with a wafer-thin majority.

Cable is currently trading at around 1.5380, and does not want to go below 1.5350 just for now. The economy seems to be coming out of its tail spin, but we must now worry about inflation without higher rates. The BOE looks to be stuck with ultra low rates for some considerable time, but the levels of debt across the planet seem (contrary to expectations) to be having their own dampening effect. A classic example is Greece, where 7pc was deemed to be such a disastrous rate for the country to pay that they had to be bailed out, but from 1970 to 2000 the Greeks would have been pleased to have bee borrowing at such an advantageous level. The same could be said for the UK; through the 1980s I was a Gilt trader when the Long Dated Bond was the 11¾pc 2003/07 (!!!), and this was in the era of Thatcherism and her squeezing of the Money Supply. If we had to pay half of this (6pc) on our long dated debt, it would have a serious impact on our ability to sustain the deficits.

Gold failed to hold to the break out yesterday and is currently drifting back towards the $1142 support. If we do go below this mark, then the bears may well really get their teeth into a corrective move. Oil, like Gold, is struggling at the highs and has now retraced to 83.50 (350 cents from the highs). It will be surprising if the indices markets are able to ignore the pull backs elsewhere and clients seem to be focussing on this. Oil obviously has strong support between 82 and 83 bucks, as this is the level that barred our way higher for so long. Like Gold and $1142, a close below $82 in oil may be quite a bearish signal.