Despite a great deal of press coverage that detailed how last week’s PBR didn’t tackle the main issue of the budget deficit in a bid to fill the headlines with a banker bonus tax the polls show a smaller Tory lead giving the ruling party a little pre-Christmas rally of popularity.  Labour’s bash a banker policy seems to be having the desired effect, but once again our great leaders have delayed the tough decisions until after the next election.

Whoever forms the next government in 2010 is going to have to take aggressive action to cut public spending which means having to reduce the size of the public sector.  If our borrowing continues in the fashion it has been then the threat to our triple AAA credit rating will become even more of a reality than it actually is.  If the UK is downgraded next year, then the cost of servicing our debts will spike dramatically making it even harder for us the plug the gap going forward and leading to more tax hikes and slower growth for years to come.

On the plus side (if you’re a bull!) the market is higher this morning and we’re back above the 5300 level.  Unsurprisingly, Dubai’s richer cousin has once again put its hands in its pockets and coughed up to bail them out.  It’s another blank cheque to service the debt burden of Dubai and will keep creditors happy until the next round of settlements is due.  But at the end of the first quarter next year there’s no guarantee the situation would have improved so creditors will remain nervous especially if the global economy doesn’t pick up as forecast.

Overnight we were calling the FTSE to open pretty flat until the Abu Dhabi news came out and we put on some 50 points in under and now seem to the sitting comfortably above 5300.  The 5325-30 area has provided some near-term resistance and we’ve now broken out of last week’s bearish trend so the next big test will be the 5380 area where we’ve failed on several occasions in the past few weeks.

Ever since the beginning of November we be consolidating somewhat, similar to the sideways move we saw in May and June before the market took its next leg upwards.  May and June’s consolidation lasted about 8 to 10 weeks so we’re nearing the end of this period if we repeat within a similar time frame.  That could mean an aggressive move in either direction around Christmas or just after and since it’s that time of year when markets tend to rally clients have been buying into the FTSE index recently expecting the gains to continue.

In the absence of any major economic data for the rest of the day trading ranges could remain narrow, but things pick up tomorrow with inflationary data, unemployment data on Tuesday and retail sales on Thursday before tailing off again at the end of the week.

FX markets saw an initial flurry of activity early this morning after the Dubai news came out but have since then calmed down.  Cable seem so to be sitting tentatively some 40 points just above the support at 1.6200 and it’s difficult to call right now if the recent weakness will continue or whether the cross will repeat its past movements and head back higher from these lows.

Gold is a little better this morning seeing its first bounce after a couple of weeks of correction.  There are people still expecting the sell off to continue and possibly test 1100, but just for now the precious metal has found support at its 50 moving average.  1110 remains support for now and there’s resistance around Friday’s high of 1140.  For the medium term the overall trend is still very much upward with the trend line support coming in around 1100 and below there is the past resistance of 1170 that could offer support id we get there.  So bulls of gold remain cautious for now, but might easily get back in or buy more on further weakness.

Oil seems to taking a breather after last week’s decline and after continual failures at $80 is looking weak, but that could be just the sort of buy indicator bulls are looking for.  The $70 level could provide support but for now with the 20 and 50 day moving averages about to cross, the technicals are quite negative for oil.