Early action on the UK equity markets rather exaggerates the word ‘action’ with the FTSE rising just some 20 points from the closing levels of Friday. In truth this is not exactly surprising as there was precious little to get our teeth into over the weekend and the Far East showed no sign post either with the Nikkei slightly lower and the Hang Seng slightly higher.
The one piece of actual information shows Private Equity in its worst light with good trading performances from Saga and the AA swamped by almost usurious lending rates from the companies that actually own them. Of course this is not the whole story as the underlying bank lending rates are more opaque but with staff expected to take miniscule pay rises when they have done well simply because their company is borrowing at levels far above market rates from their actual owners and those same owners are trying to squeeze every drop for a possible float the term “unacceptable face of capitalism” springs to mind.
As mentioned the markets are climbing slightly from last weeks closing levels as confidence continues to creep back into investors minds. The question as to whether last Wednesday’s slump would create its own little fear driven bear market seems to have been answered. While economies across the Western world continue to struggle the fact is that there are precious few places to put your money to achieve any kind of return (god knows how much you would need to have in a pension fund now to retain a decent standard of living on retirement). The danger in this is that, in chasing yield, we create another unsustainable bubble. Money Supply numbers and Q2 bank results would indicate that economies are slowing once more as the first flush of post crisis spending dries up and new lending is difficult to engineer. The whole world needs to export its way out of its problems but with domestic demand outside of the Far East anaemic at best one does wonder who we will all be exporting to.
The resistance in the FTSE remains just above 5300 at 5305/10 the same as Friday and support at 52525/35 further out we still have 5355/65 and the biggy, 5415/25, on the up side and 5170/75 and 5110/15 to hold us up. In reality it is still difficult to gauge an overall direction and as mentioned many times over the last few weeks 5200 to 5400 looks to be set for a while. On the Dow the omens actually do not look so optimistic as the rejection of 10700 has been rather more conclusive. We are now at 10325 still 400 pips from the recent highs (the FTSE is just 120 away) and the S&P is 50 big figures from last weeks peak. The FTSE has bounced over 100 points from its lows whilst the US markets are still pretty much at them. The failure of the US markets to recover from the mid week falls is rather more worrying. The S&P is at 1080 as I write with strong support at 1069/1072 (unnervingly close).
On the currency markets the woes of the EU bloc seem to be raising their head again as the European Central Bank expresses happiness with bad numbers. Tax receipts across the Southern States are worse than hoped and this will be adding to the overall debt level and decreasing their ability to repay in the future. The recent weakness in the Euro (before the even more recent bounce) aided the big exporting nations (Germany, France etc) as was shown by Q1/Q2 growth numbers. All in all the storm clouds seem to be gathering once again and with the dollar having gone through its angst moment over that last couple of months buyers of the Euro and Pound seem thin on the ground even though they have both dropped 5 cents in the last week).
Crude is back at the OPEC favoured price of 75 bucks and it really is starting to seem as though this is ‘the price’. Since last June the price of Black Gold has effective oscillated about a core range of $75/78 achieving 65 on the down side and 87 on the up. If the global economy does weaken towards the end of 2010 then we may see a break out to the downside but in any case tax rises across the world are forcing ever more economy on both business and private consumers (in the UK the price of a Litre is now approaching a peak again even though the underlying product is hardly moving).
Gold is moving inexorably higher and is now at a post 1st July (the big 50 dollar reversal) peak. It has spent a couple of sessions testing the break of the 1212/14 resistance (now support) but has not seen a retracement. In this environment the upside ‘looks’ the more probable but it is slightly worrying that the bulls have not made more of the break out. Both bulls and bears will be watching the aforementioned support levels as a return and close below here would not be good. On the up side the target is no doubt the 1250/65 region which has proved a bar to progress in the past.