The sun may be shining down on the City this morning, putting a smile on traders’ faces on their way into work; however, the markets are struggling to match this spring cheer. Cable for once is taking the limelight away from the euro with negative news, after yesterday’s worse than expected trade balance numbers.
The trade balance numbers yesterday did nothing to help sterling, and the poor export numbers come as a bit of a surprise, since sterling’s weakness is meant to be assisting our sale of goods to our trading partners. But since most of them have economies that are up the spout, it comes as little surprise that we’re finding it hard to export things. Once again, cable is weaker in early trade, with the recent thirteen month low in sight.
Currently trading at 1.4600 and not a buyer in sight, it looks likely to continue its downward trend until some clarity over how George and Vince are going to address the budget deficit is given to the market. The Euro also continued its slide downwards against the dollar, making a new 13-month low at 1.2516, before bouncing slightly. Given that it is impossible to find anyone in the square mile who has a good word to say about the prospects for the currency, further declines to test the lows last seen in the wake of the Lehman’s collapse in Sept 2008 at 1.2340 look on the cards.
The indices had a relatively quiet day in comparison to the recent volatility seen in the last week, with the FTSE closing up 50 points last night at 5433, however this morning all these gains have now been reversed and we are back down at 5388 as I write. Retail sales figures out of the US at 1330 UK time will give the market a good idea how the US consumer is recovering, which may provide some volatility to the markets. The data is expected to weaken and will do little to assist the bulls of equities, many of whom remain bullish that this recent correction serves as a buying opportunity.
The data from the US continues into the afternoon, with industrial production, which is due to compliment the latest strong ISM manufacturing survey with a rise. Then May’s preliminary University of Michigan confidence figure, which could suffer a blow from recent stock market falls and higher petrol prices across the US and then we end with business inventories. So plenty of data to get our teeth stuck into!
So, the indices seem to be reflecting this morning after having rallied back sharply from their lows earlier in the week. There isn’t quite enough momentum at the moment to pull us back to the highs set in April and many investors will be unnerved by the increase in volatility. For the FTSE, the 5000 area has lent support, but the correction this time has been so severe that some feel this bounce is of the “dead cat” variety.
Gold is a little stronger this morning, as the precious metal seems to have lost momentum just below the 1250 area. Profit-taking has been evident over the last few days and who would blame the bulls for taking a little cream off the top, after the good run higher. The prospect of a move lower increases with every move higher, but as long the volatility in equity markets continues, gold should remain supported.
Crude continues to weaken and bears will be looking at a possible test of $70 for Nymex soon. The falls over the last few days show the uptrend is being tested and a break below $70 could bring this uptrend to an end.