The doom mongers seem to be back under the covers for the time being as new releases from the front line of Sovereign debt downgrades and on UK and European Public Sector expenditure cuts dries up.
The supports in all the major indices held well through the start of last week and even though retail sales in the US were poorer than hoped (following the grimmer than expected Non-Farm Payroll the week before), the fact is that they were just worse than the ‘quite bullish’ forecasts, they were not actually ‘bad’. Investors seem to be keen to come back in on every pull-back from these levels and one feels that unless something fundamentally new happens they will continue to do so.
There are no serious data releases this morning so trends are likely to be in place for the early session day, a bullish start to the week seems unlikely to be damaged at least until the US joins in. Tomorrow’s UK inflation data is more likely to cause some problems. With the worlds attention focused on South Africa for the next few weeks it is truly hard to see what is going to upset the applecart on a wide range of fronts. We are still in the ‘if we have a problem, print more money’ phase of the economic cycle and at some point this will turn either into inflation, a minor/major slowdown or more hopefully, a long slow painful struggle out of the mire.
As mentioned, Equity markets have bounced strongly from the supports (yet again) and the FTSE is now back towards the highs of the recent trading ranges and is called to open around 40 points higher at about 5210. The last month or so has seen many failed attempts at the 4950/5000 support and also quite a few, similarly unsuccessful, tries at the 5225/50 resistance level. Trading is likely to continue on the bullish line this morning as the lack of any actual bad news, as opposed to just ‘not good’ news, is giving investors some confidence to get involved once more.
On the currency front the Euro is continuing its recovery from 1.19 and is currently at around 1.2200. Traders are unlikely to get too over enthusiastic just yet as the overall trend is still very much Eurozone unfriendly but, this said, the current slow grind higher is rather more confidence inspiring than the previous sharp bounces that we have experienced in the last couple of months. The bears will still be focusing on 1.1600 the bulls on the bottom of the old support at 1.2350. We have managed to get back above 1.2150/70 minor resistance/support in the early session and longs will be hoping for more of the same with 1.2270 the near-term target. On this note, both longs and shorts will be watching the 1.2150/70 level for any retracement. If we nudge below here through the session sellers may well become more aggressive.
Sterling is also back in favour this morning, continuing the attempt to recover the ground lost last Thursday. We are currently at 1.4650, but resistance is actually quite some way away at around 1.4730/60. As with the Euro all the news over the past four or five months has been bad, but it is difficult to see what else can crawl out of the woodwork just at the moment. Sometimes things just go up because there is no one left to drive it lower.
Oil remains in the recent range as well, although as with everything else near to the top. 75/76 bucks has proved to be something of a barrier for the July contract recently, but it must be said that it does keep returning to the level. At the moment 67.50/69.00 (or thereabouts) is proving to be a support and the pre-mentioned 75/76 a resistance. In between here we are rushing about to no great effect. The recent strength in the Chinese economic numbers would suggest higher prices although the (much greater consuming) weakening in US and European figures is pulling the other way. Prices for all raw materiel resources are still very high and one does worry that the never ending drain of money from the developed world to the Resource nations for fuel etc and the developing nations for manufactured goods is now reaching critically unsustainable levels (for those of you who like very long-term scenarios).
Gold has retraced from the 1250 level once again, but the pull-back can hardly be said to be aggressive. It is slightly worrying that, while most other markets seem to be slightly more sanguine about prospects, Gold is still ‘up in the Gods’ seemingly forecasting doom and disaster.
Volatility has slowed slightly in recent days but the clouds are still dark.