Markets have drifted back into the ranges of earlier in the week with the FTSE now back under 5300 where we clung on grimly through much of yesterday. The minutes from the MPC showed the voting at 8 to 1 to hold steady which caused a short term rally in Sterling and Stocks but the overall ennui seems to have won the day after all and back we go.
The FTSE is now back in the 5200’s and looking at the 5255/65 resistance now turned support. In reality there is little reason for the pull back just as there was nothing much to justify the rally of Tuesday. Opposing FTSE index market moves seems to be the name of the game at the moment and clients are having a rare old time picking tops and bottoms.
As with the comments of last week it really is difficult to argue that any particular market is over or under valued although the long bond/equity yield reversal does seem a tad odd given that global inflation is not exactly abating. While low base rates are expected to remain fixed for some time the important word here is ‘expected’. Current economic conditions obviously indicate that interest rates remain low but…. with inflation now over 3pc and also rising in Euroland and the Far East we are faced with the situation of UK Banks being asked to lend at rates which actually give a negative return (on absolute value). Not surprisingly international banks are not exactly keen to get involved over here while the domestic banks do their best to make up the slack. Sometimes low interest rates may not have the intended effect. Interest rates staying low for too long may well cause inflation to get out of control and the MPC is well aware of this fact.
As mentioned above the FTSE is back below 5300 but the fall out is neither precipitous nor particularly aggressive. It would be no surprise to see the FTSE move back above 5,300 but a determined move either up or down will need to be driven by some particular market event or data. The FTSE, along with the DOW, looks becalmed at present with little news flow to influence traders decisions.
Currency markets saw Cable hold onto the 200 day moving average at 1.5493 and then the price strangely jumped just before the release of the BOE minutes. On the release of the minutes, Cable continued to climb above the 1.5600 level, however this was knocked back and this morning we have seen a low of 1.5508. At the time of writing Cable has again soared above the 1.5600 mark and now sits around the 1.5635 level. The towering GBP/USD price has sent the EUR/GBP below 0.8200, although yesterday morning’s increase in GBP/USD did see EUR/GBP make a comeback so watch this space. EUR/USD launched itself over the 1.2900 mark with yesterday’s high at 1.2921, although it has slipped back overnight as the USD gained support.
Gold broke through the 1225/27 resistance yesterday afternoon and continued to climb to a recent high of 1232.8. This has levelled out and now sits just below 1230. It does seem that investment demand for gold remains strong despite the odd pullback.