Onwards and upwards. Investors continue to shrug off the bad news and pick up equities with banking stocks leading the way after another stellar round of results from leading European banks. For now it looks like the 5000 level in the FTSE has well and truly held us up just when there were doubts starting to creep into investors’ minds over the sustainability of the rally.
Once again we’ve seen our price for the FTSE creep up throughout the night as Asian indices put in a good show and in particular Australian shares hit a three week high. As a result miners are also stronger bringing the riskier assets back into favour.
The bumper round of bank earnings is encouraging for all concerned as after all the tax payer will want to see a return form their investment, but it still won’t come for a while. The return of banking profitability has come at a cost in the form of greater capital having to be held on their balance sheets, meaning less funds being lent to the wider economy to help it grow. New business start ups and existing companies requiring a little cash injection to help shore up working capital simply aren’t getting the money. On top of this inflation is ramping their costs and ravaging the bottom line. It’s not an ideal scenario and the recovery will be tested to its core.
With all the dire news out there equities are rallying regardless, being driven by strong earnings. Both in Europe and the US the earnings season has been better than expected overall.
There’s a good amount of economic data to get our teeth into today starting with the Bank of England minutes and UK unemployment data. A more dovish than expected February Inflation Report might mean that we can see some members of the MPC calling for an extension to the QE at the last meeting. Expectations for interest rate hikes in the UK have been pushed back with the majority now believing we won’t see anything until the back end of 2010 rather than the middle.
Unemployment in the UK could actually show a small decline. Recently, job surveys have been indicating that the number of full and part time jobs have been on the increase so the overall rate could drop from 7.9% to 7.8%.
Later on we get US housing starts, industrial production and then end the day with the FOMC minutes later this evening. Included in these minutes are members’ economic projections, so there’ll be plenty to get our teeth into. The main focus as always will be what indications are given as to the future path of interest rates, which so far the Fed has managed to keep under wraps.
The little dollar squeeze seems to be continuing as the risk trade returns so the dollar is a little out of favour this morning. EUR/USD is just flirting with resistance around the 20 day moving average around its current level of 1.3775 at the time of writing and above here further resistance is seen at 1.3800 then 1.3845. A further bear squeeze could easily see us return to 1.4000 where there’s major resistance and possibly beyond, but the trend is still firmly against the euro.
Euro and sterling continue to battle it out having been fluctuating between 0.8800 and 0.8600 (1.1340 and 1.1600 for those who prefer it the other way round) as investors continue to mull over which is the worst of a bad bunch.
Gold and oil are creeping higher again assisted by the dollar weakness but remain tentative after yesterday’s strong run higher. Oil inventories later today could also provide the usual volatility in oil prices so beware this afternoon.