As the Captain decides to rearrange the deck chairs on the Titanic, the BOE has been tasked with taking over much of the FSA’s remit. Overall, we are left wondering “what is the point?” One assumes that, as nearly all the regulatory expertise now lies with the FSA, the same people will just transfer their loyalties from one institution to another and nothing will change.
From the vantage point of history, it appears that, as far as the UK was concerned, the Banking crisis of 2008/09 was pretty much solely confined to two institutions (RBS and HBOS). Northern Rock and B&B would have survived in any other European nation as all their problems were, in the main, liquidity issues (not excessive bad debt), which the BOE should have provided for (that is, after all, one of their major remits…being the lender of last resort). RBS was undone by its purchase of ABN (up until this moment, it was reasonably ok), which not only cost a vast sum of real cash, but also exposed RBS to a unit which actually had enormous negative value. This was a major failure of senior management, but hardly an FSA issue, which leaves just HBOS as the single major torchbearer of overall bad lending practices, and even this was not a derivative based problem, but an event of actual real money going out the door into the pockets of borrowers.
While the FSA may be in the firing line for HBOS, it is difficult to believe that another regulator would have done things any differently.
We now have the situation that the rules are being so stringently exercised, that institutions looking for regulatory approval are giving up in the face of huge barriers to entry being erected. While it appears a truism that such permissions should only be given, after exhaustive investigation we are seeing this reach too onerous a level. This has the effect of entrenching existing businesses to the detriment of customers. One of the reasons for the recent huge profits being made by the investment banks is that there is now far less competition, even banks which used to have smaller investment units have been pulling out of the sector in the face of public and political pressure.
Anyway, back to the market.
Indices look to be reasonably solid up at the top end of the recent ranges, and it is difficult to get too pessimistic on the basis of repeated past failures to advance. The FTSE, indeed, would be considerably higher (200 points or more) if the BP debacle had not occurred. There is a certain amount of resistance to a move higher at 2565/80, but if this can be overcome there may be the potential for a return to 5400. Trading has quietened down in recent days, as participants take a more considered view as to the markets valuations, especially since the woes over the European sovereign debt issue have died down a bit (or at least come off the front pages). While the FTSE (and other indices) did take a battering over the bad news, it was difficult in some instances to see the correlation between Southern European crises and US/Far East/UK 10-15pc equity falls.
Of course the opposite hold’s good as well; if the resistance holds firm and the indices in general fail to make headway, then confidence may drain away very quickly leading to yet another fallout.
Retail sales in the UK have come out on the better side of expectations, which is somewhat surprising, given the general fall in overall confidence recently, but it would always be a brave man who would discount the British consumer! The pound is likely to gain some comfort in the immediate-term, but as with the Euro, there is a feeling that the recent rally has more to do with lack of news and short covering than a real reversal in overall sentiment. 1.4850 looks to be a move too far for the moment, but the mid-to-low 1.45’s and 1.46’s are also forming good support. Clients seem happy to day trade in these ranges and have been locking in the wonga on a regular basis.
The Euro is (almost incredibly) still overvalued on a purchasing parity basis, and with the worries that continue to revolve the EuroZone, a big revaluation upwards might be too much to hope for just at the moment, there is serious resistance around 1.2350/1.2450, as mentioned in comments past. If the cross could make it through here though, we might be looking at a stronger medium-term performance.
As with previous comments, all the markets seem to be stuck together with Equity markets moving higher in line with Oil and with Dollar weakness. If the Indices fall, the dollar rallies and vice versa.
Oil has made it over the 75/76 resistance area and is comfortably ensconced at 77.40 bucks, as I write. Sellers seem to be unable to make any headway and the old OPEC target price of $75 (minimum) seems to have won the day after the falls of May. Whether we can breach the 80/85 dollar levels again is a slightly different matter. For the last year (or thereabouts), the price has generally moved between 65 and 85 and we are current bang in the middle. Historically over the last year, we tend to move from the lows to the highs of the range and vice versa, but…the penalties for getting it wrong are high.
Gold continues to hover near to the all time highs. This is a tad worrying, as with all other markets looking more sanguine, we might have expected a bit of weakness in the Yellow metal. The Charts remain undeniably positive and the sovereign crisis still has a very long way to run, so bears will probably have to remain hopeful rather than expectant.