Ouch, when the markets don’t like you they really don’t like you.
Sterling continues to weaken as the prospect of either a renewed Labour administration or a weakened coalition gets more likely by the hour. The Lib Dems have announced that they want to ban bank bonuses and implement the ridiculous ‘Robin Hood tax’ and the really worrying thing is that one or both of these might be one of the more stupid payments they will extract to gain their vote for power.
It is difficult to imagine a more destructive policy promise for the UK. Banning bonuses would immediately lose the entire investment and international banking infrastructure built up over several centuries and while the ignorant might say “so what?” the more prudent would point out that the invisibles revenue generated for the UK by the square mile is enormous compared to the number of people employed. The UK is in danger of driving out the very people that it will most need in the years ahead.
The pound has dropped below 1.4900 this morning following on from yesterday’s dramatic action. The low in an awful period between 09.30 and 11.00 yesterday was 1.4780 as rumours abounded of huge fund liquidations and rights issue currency hedge sellers (for the Pru/AIG deal) swept through trading rooms. To be fair there does seem to be some support below the 1.49 mark in early trade and dealers are buying in numbers unfortunately this is unlikely to help much as the world and his dog seems set against the poor old pound once again. What started out a few weeks ago as an attack on the Euro has mutated into the possibility of turning into a classic sterling crisis.
The best policy for currency traders is probably to have ‘no policy’ as crosses swing wildly this way and that on a moments notice (the Cable cross has fallen fifty pips rallied fifty pips and fallen back 40 pips in the time it has taken to write the last two paragraphs!). Support in sterling (there is some of course but difficult to find just now) is at 1.4850 and 1.4770 with resistance at 1.4970. The problem is that the recent price trend might seem to indicate a renewed attempt to move back to the 1.4380/1.4400 level another 5 cents lower.
And in the meantime the Euro (which was the initial trigger to all of this) is sitting in the low 1.35’s seemingly comfortable with the current situation. Support for the Euro at 1.3450 was tested again yesterday in all the chaos surrounding the pound but there was no appetite for another bash and we bounced back into the middle of the recent trading range. 1.3450 is proving to be something of a difficult barrier to break as we have now failed three times to make any impact. Either we are building up for a really impressive Euro bashing period or we have found a floor. Either appears reasonable just now but the trend is always difficult to completely ignore and the Euro has been on the bear tack for some time now.
European Equity markets continue to climb as their currencies weaken although the overall momentum to the upside does seem a tad weary. For Global investors UK equities must appear ludicrously cheap unfortunately it would be a brave investment advisor who recommended Sterling assets at this moment in time.
The FTSE is opening at new recent highs of 5425 and we have now almost completely unravelled the sell off of late January/February and are back into positive territory for the year. 5400 has proved something of a barrier to the bulls recently and the potential confirmation of a breach higher this morning may bring out more buyers through the session. The bold move by the Pru is a welcome variation on the more normal takeover going in the other direction (for years we seem to have seen the steady foreign acquisition of UK assets), the price paid is not ‘full’ but not cheap either and the huge right issue discount price naturally brought the shorters out in droves BUT… this time they just might be caught out as the Pru appears to have easily enough takers for the new stock.
Oil failed at the 80.50/81 level again (yawn) as the dollar rallied. Whether there is appetite to pressure the lows is moot. As yesterday’s comment pointed out the 77/81 range is proving irresistible at the moment. Current price is at 78.60, mid range and uninspiring. Traders will either play the ranges or wait for a break in either direction. To be fair at this price sitting on hands appears to be the best trading decision.