Markets continue to surge on not very much news and we are now pressuring the resistance in the FTSE at 5300/5310 and if things continue will soon be at the 5335/40 peak of the last bull move. Longer term players are still keen to pick up stock at what are perceived to be solid levels on a return analysis versus bonds and cash. A few weeks ago we were concerned about another possible credit crisis involving the European Banks but this possibility seems to have been well and truly sunk after the ECB continued its liquidity injection (albeit to a lesser extent than previously). The banking problems continue to dribble along but the fear of contagion from Spanish, Greek etc institutions is fading for the moment.
Intel’s numbers out late last night gave another boost to investors coming in well ahead of expectations for the last quarter and (more significantly) stating that current trading conditions were good as well. Intel has become something of a bell-weather in recent years and good news from this quarter cannot be lightly ignored. We now have a series of contradictory pieces of data where corporate America seems to be doing reasonably well while not doing quite well enough to impact the overall economic numbers. As state stimuli are removed in the coming months/years (witness the effect of the ending of the new house purchase handouts) we can see that individual sectors directly affected may falter but at the moment there seems little chance of a general effect in other areas.
As mentioned the FTSE is up at close to 5300 and most markets which were suffering through May and June are rebounding strongly. The FTSE may run into some profit taking in the short term but we will really need some in deniably bad news (rather than just apocalyptic speculation) to really plumb the depths of last month. Support is now at the old resistance of 5250/55 and resistance at the aforementioned 5300/10 and 5335/40. Over the last six sessions we have seen a series of surges higher with minor reversals merely giving investors slightly better levels to go long. BP big rally (after the massive falls) has helped focus minds as well on what is important in the long term rather than the short. In hindsight (an easy thing to do of course) we can wonder at who was selling such large stakes in the company down at 300p and lower. Even the worst case realistic cost scenario only looked at a long term cost of £20 bln which should not have affected the valuation to the extent it did. If the good news from the well continues then the only longer term problems will be the political ones which (as with all big news events these days) will fade with time.
The dollar continues to give up ground gained versus the Euro and the downgrading of Portugal seems to have been the trigger for further buying of the euro-zone currency. Almost an example of “we now know the worst” and can move on. We are still in a possible bull bounce in a bear market but the probabilities are moving further and further away from the Greenback. Oddly though the US economy seems to be recovering faster than that in Europe and so we might speculate on rates moving in the States earlier than over here. The Euro is now at 1.2730 pretty much the highs for the last two months and critically above the bear trend line in place since last December. A close at current prices may well bring out the technical players to set up longs for a move back to last years levels.
The Unemployment data in the UK was slightly better than expected and this is pushing the Pound up to the mean/median 1.5250 level of the entire 2009/2010 trading ranges. Over the last eighteen months we have oscillated (albeit in huge swathes) around this mark, sometimes on the way somewhere else and sometimes as a holding point before reversing back up or down. It is difficult to estimate which way we will go from here but the force is with the bulls so it is dangerous just at the moment to stand in the way.
Oil swept through the 75 bucks resistance yesterday and stormed up to 77 dollars. Bulls will be looking at the two highs of last month at 79 and 80 dollars. A few days ago we were wondering if prices might fall towards the 68/69 support but these fears have now been removed to a great degree. We are likely to continue in the biggish range for the foreseeable future but it must be said that the probabilities of serious falls seem to be receding.