Every market has now clawed its way to new highs and investors are sitting in the stands cheering them on.
The Dow is comfortably above 11000 and the S&P likewise over 1200. On the other hand, the Europeans, whilst sitting at new highs, are still perilously close to the psychological resistance/support areas. US retail sales data yesterday showed that Americans are swamping the Malls once again, and all seems right with the world all of a sudden.
In the UK for all of the talk of the worst recession since before the war anybody over the age of twenty-five might be forgiven for saying ‘pull the other one’. The chaos and misery of the Seventies and Eighties recessions/hyper inflation were far, far, worse and whilst unemployment rates have risen they are still pretty low by European standards (or historic recession levels for the UK), debt has never been so affordable and those in employment (still over 90pc of those wanting to work) may be thinking that things are ok after all. Unfortunately, of course, the nasty tasting medicine still has to be taken in the UK, whereas smaller countries have been hurried into problem solutions (Ireland, Portugal and Greece). Our Lords and Masters continue to dance around the major questions and there must be a sense of fear in all the electioneering, in that the winner of the election will have to be the one who makes all the nasty decisions. This will almost certainly make the victor this time round the loser in five years.
Indices are flying high, to be sure, but there is always the small little voice in the back of my mind that keeps telling me that there is something awfully odd going on. Money Supply numbers are telling us a very different story to that which the overall economic data seems to be implying. I fear that European and US growth is still very much a consequence of State spending and once the screws start to be turned, the current optimism may disappear like mist.
Currency markets moved against the dollar yesterday, but are in the process of reversing this today, with the Euro seeming to be the whipping-boy on this occasion. The agreement over Greece may be in the process of unravelling, as Germany is facing a series of legal challenges over its participation in the ‘bail out’. If the plan is blocked in the courts, then the spotlight will fall on all the other at risk nations (the PIIGS) and the currency might possibly take the strain again. In the long-run, the powers that be will find some way through the legal tangle as the ‘idea’ of the European Superstate is still very much alive in the minds of the politicians.
Sterling is looking reasonably solid at the moment and the surge in support for the Tories seems to be giving buyers some confidence, but it must be said that the word ‘some’ is the apposite one. Recent polls have a comfortable lead for the conservatives and one might have expected more of a positive reaction in the markets. There is always the worry that if a market will not go in the expected direction, then it will probably go in the opposite!
The Cable cross peaked over 1.55, but was unable to break above the 1.5530 resistance. Dealers have been lightening longs through the early session, and we are pressing at 1.5460/70 support. We are looking to see buyers come in at this level, but a breach below here may open us up for a shift back yesterdays range around 1.5380/1.5430.
The Euro is likewise hitting supports at the moment, with 1.3560/70 the level in this case. Since last week’s announcement over Greece, we have returned several times to this level, always without success from the bears’ point of view. Like Cable, a break under this support might well trigger some solid selling, with the sub-1.3500 area looking attractive.
Gold had another attempt to get above 1161/62 yesterda,y but ran out of steam rather easily. The downside appears similarly constrained, with no appetite below 1150/52. As with all these levels commented on today, it would be the breech that might get some activity going, but in the meantime there is very little to go for.