Back into the trading ranges for the Indices, with the results from Citigroup beating expectations and bolstering the US markets, after the rather artificial storm over Goldman Sachs broke on Friday.
Markets had a go at the 5700 level in the FTSE, but really had very little power to effect a decent attempt and buyers through yesterday afternoon/evening have resulted in a return to the mid 5700’s. As mentioned yesterday, dealers were looking for a return above 5740 to negate the break of the short-term uptrend and it appears that the open this morning will achieve this objective, with the early call at 5750. Our clients have managed to get themselves short of the index and may be under pressure at this point and in danger of a squeeze higher stopping them out. Overall we appear stuck between 5720 and 5820, with sporadic attempts in either direction to take us lower or higher. With an election in just a few weeks, it really is very difficult to see any impetus in either direction being generated from UK data as one would imagine that most investors have already made their decisions and are now sitting on the sidelines awaiting events. This does not mean though that we can ignore influences from outside the UK and on this score, the momentum remains with the bulls (just about). Although the Dax is making a bit of a song and dance over 6200 and the S&P likewise over 1200.
CPI data is due to be released at 09.30 this morning, and the market is expecting to see a further drift lower down to 2.8pc from 2.9. The BOE is in something of a quandary about this, as expectations from the growth numbers from the last few years would have been for much lower inflation data and a return to more robust growth might well imply a risk of an inflationary burst.
It is also a major reporting day of in the US, with the likes of Apple, Goldman Sachs, Morgan Stanley, Coca Cola, Johnson & Johnson and Yahoo (amongst many others) releasing data. These are massive household names even over here and will give a much better outlook on the US economy than anything the politicians can tell us.
On the currency front, the Euro is weakening again versus the Dollar and Pound, and the story from the Southern States looks to be going to run and run. Greece seems to be back-sliding already on its commitments to cut its deficits and this will not play well with the Germans who must still get the bailout through their legislature. In reality we all suspect (know) that a solution involving lots of money will eventually be agreed; otherwise we are contemplating the demise of the EU project, which the politicians will never agree to (no matter how much it costs). In the long run this can only harm the Euro.
Sterling is back above 1.5350 as I write, which will please the bulls (who are in the majority with our clients). There is some minor resistance at this level and up to 1.5385, but traders seem confident at the moment. As mentioned before in these comments, the election run-up is likely to be played out in the Gilt and Currency markets (not in the equities), with each poll being taken as gospel even as the next one hovers into view. At the moment, the Libs are riding high (and so the pound fell), but there is a sense that this will be the high point for them and so the temptation is to get into Sterling, in anticipation of a fading in their appeal in later polls. While I would not disagree with this assessment, there is a danger that the massive Press injection focussing on their party will not harm them in the least. It has always been a problem for the Liberals that they have always lagged in ‘column inches’ and ‘broadcast minutes’ now, however, they are probably getting more comment than the Tories and Labour combined. There is no getting away from the fact that the two major parties are held in very low regard by the electorate, so there is a reasonable prospect that Mr Clegg may be able to build on his current surge, and the election is only a few weeks away (not much time for a faux pas to ruin his chances).
Support in Sterling is at 1.5280/1.53 versus the dollar, but this looks to be safe for the moment.
The Euro is struggling to regain momentum and 1.3500 looms as a pretty solid barrier at the moment. Punters are buying into the weakness and are banking on the support of 1.3425/1.3450 holding firm, but each rally seems to peter out at a lower level and this is generally not a good sign. Bulls will be hoping for a close above 1.3490/1.3505 tonight and Bears initial interest is for this not to happen! Targets for the downside are the aforementioned 1.3425 and then 1.3285/1.3300.
Gold fell all the way to the 1120/22 support yesterday, efore rebounding to the current price of 1140. Our clients bought into the weakness and have been rewarded for their faith this morning. The immediate target is obviously to break above 1140/42 once again and then make another attempt at 1161. On the downside, notwithstanding the sudden fall-out and recovery yesterday, there is strong buying in the low-to-mid 1130’s, so a move below here appears unlikely today.