Suddenly the world does not seem so cuddly with the 5050-70 region in the FTSE (mentioned here several times over the last week) having been rejected for the second time in two days on Friday. The valuations for equities appears to be rather full just for the moment and our clients have been liquidating equity positions at an increasing rate. While the horizon does look slightly brighter the problem for equity returns is that corporate profit improvements still appear to be driven by cost cutting rather than any significant increase in revenue. The sell off in the very early minutes of today’s session has now been (in the main) rejected but our clients are getting more and more nervous about the probabilities of risk/reward now we have, effectively, wiped out the post Lehman market losses.

On Friday The Dow gave up the rally at the exact same high of the August move (9650) and while the Dax, S&P and FTSE were all probing new territory it might seem that the (probably not really merited) global pre-eminence of the mere 30 stocks in the ‘Dow Jones Index’ outweighed the effects of the other three!

Corporate announcements are quite few and far between this week but the ‘great survivor’ Debenhams is giving a trading update tomorrow and this may well be seized upon by retail analysts as a template for the rest of the sector. I do not know many people who held out much hope for the survival of the unit at the back end of last year as the weight of debt and general outlook made them a prime candidate for extinction. The masterly handling of their debt exposure by the board has proved critical and with rates now down way below expectations of 2006/07 the business model must be rather more favourable than it has seemed at any time since the refloat in ’06. The stock has responded and is now four times the lows of Nov, Dec last year almost putting on par with the reverse in fortunes of the financial sector.

Kingfisher also report, on Thursday, but these will prove to be slightly unsurprising as their numbers were leaked last week. Whoops! Pre Tax profits are said to be around £290m down somewhat on last year but by and large in-line with expectations. The stock ended last week by and large where it started it and no real surprise can be expected this week.

Currency markets are trying to take a more dollar favourable look this morning but, in truth, it is really only the pound that is suffering to any extent. The high for sterling on Friday at 1.6740 now looks to be a move too far and (oddly enough) matched exactly the pre-August break out high on the 30th June. History obviously does, sometimes, repeat itself. For those of you who like neatness the markets are now rather unnervingly looking like the possible formation of a head and shoulders pattern. If this proves to be the case we may be returning to the lows in the longer term. Poor old Sterling really does look to have few friends at the moment and the recent weakness of the Dollar versus the other three major currencies has not been reflected in a fall against the Pound. The double top in Sterling/Yen at 163 is particularly pronounced and the failure on 25th August to hold the support line (in fact the failure over the last few weeks to hold any supports at all) is beginning to worry. If we continue on the way down the critical level will be the 146.00 -146.50 which, if challenged and broken, might bode ill for a return to the 120-130 lows. There is minor support at the current 150 level and resistance at 150.45.

Oil slumped on Friday after an initial surge and continues to look weak through the early session this morning. For Nymex we have support at 68 bucks and more heavily at around $67. Rather worrying for the bulls is that we are sitting right o the trendline support from last February. A close below 68.40 might open us up for a fall back to the $60 level.

Gold is also looking difficult with the markets giving up on $1000 once again in the European session. While it is difficult to be outright bullish or bearish we must continue to be wary of the 993 level as this seems to be critical. Intraday it is continually being a support or resistance and while we traded below it several times last week we have yet to close below it in the European Session since the 3rd Sep rally.