New yearly highs for virtually everything yesterday as the belief that the worst is over builds up ever more steam. On top of this the Inflation genie seems to be still in its bottle underlining the returns available on stock and driving the yields on even the most toxic of debt ever lower. In the UK and US the QE policy is effectively driving the price of Treasuries and Gilts to ever higher level and by association the availability of funds to pre crisis proportions.
The problem for analysts at the moment is trying to estimate to what extent the pushing of money from sovereign bonds into corporate debt and equities is driving the rally. Once the BOE stops buying debt we might be in a better position to quantify the actual value of assets.
Comments in the press that we might be entering an ‘official’ bull market seem a little off the mark. An official bear market is considered to be a 20pc drop… the FTSE has now rallied over 50pc from the March lows, if that is not a ‘bull’ market then it is difficult to say what is!
This morning we are calling the FTSE at 5265 about 10 up on the 16.30 close which counts as almost unchanged these days. Clients are still selling at any prices above 5200 and were caught the wrong way round in yesterdays morning move. Overnight we saw the US markets move to even higher levels but there has been a certain amount of selling in the early hours and, with no big corporate news after the US markets close, we may be in for a quieter time on the off. There is quite solid resistance just above the current prices at around 5300 and above here there is massive volume resistance all the way up to 5650. If we can get into this range then there will be a good argument for staying there for a while. If we hover just below it for too long then the odds may well favour a return to the depths from which we came.
The Pound has put on a bit of a stunner over night rallying all the way up to 1.6100 vs the dollar and 1.0780 vs the Euro. A few days ago this was not the way things looked as everyone and his dog piled out of Sterling. In reality, of course, too many people were betting in the same direction and this is probably creating its own support. The move in early action today has a look of a ‘bear hunt’ as weak sterling shorts are hunted down and killed.
Punters are selling the Euro/Dollar cross and there is obviously some impression that the Euro has come a bit too far. The best you can say at the moment is that, in the main, our clients are long and wrong of the dollar as the market drive away from the worlds only current ‘global currency’ continues. Mutterings of the creation of another major currency in which to value commodities and trade will no doubt continue for many years but even if all the disgruntled nations could actually agree on something the probability of anything actually happening in the next decade is quite low.
This said the momentum for the dollar especially verus the Euro can only be described a one directional. Since April the cross has only gone in one direction in favour of the Euro. There have been minor pull backs in that time but the overall move has seen the cross go from 1.2900 to the current 1.4930. There is major resistance at 1.4966 (oddly enough the exact high this morning!) from November ’07 which might give us pause for concern but if we go through here there is not much resistance until 1.5280/1.5300.
Oil continues to grind ever higher and the close above 75 dollars yesterday might be significant. Technically there is not much resistance above here all the way up to $85 and possibly $90, a minor barrier at 77 is the hope for bears but the drip, drip, drip price increase is pressuring more forward risk covering. Historically the trading ranges we are seeing these days are actually quite small compared to the last couple of years especially given the movements of other asset classes. Bears must beware the possibility of a spike higher (and by spike I mean a 10 to 15 dollar week). While the UK and Europe might be struggling out of recession the Asian markets seem to have gotten themselves back on track. Potential pressure on supply may well be closer that we believed just a few months ago.
The weak dollar continues to hold Gold well above the $1000 mark but we are seeing increasing selling from our customers (who are generally Gold bugs) and many now seem to see the chances of a fall as being as likely as a rally. For the moment the Yellow Metal seems unhappy above 1060 and is indulging in some sharp sell off above here (to be fair there is good buying around 1055 as well. For the moment 1070 looks to be high that might take some beating.