Markets are pretty sanguine around current levels and, although we are getting the odd sell off on particular news stories, this is not dissuading the buyers in the slightest.  Late yesterday evening IBM came out with almost equal and opposite news to Intel’s good numbers last week citing slowing demand for services and weaker income due to second quarter dollar strength.  This had the after hours US markets slipping 100 points from the close, come this morning this is ‘all change’ as the far Eastern markets react to better expectations for the Chinese economy (one is beginning to wonder how many times the long term economic outlook can change in one month!)

Today sees the M4 money supply numbers out from the Treasury and readers will know that we occasionally like to comment on growth prospects with a falling M4 (i.e. how difficult it is).  Politicians like to berate ‘the banks’ about lending more money whilst at the same time requiring ever greater ‘protection’ for ‘tax payers’ and less ‘casino’ antics on the part of the trading units, it never seems to cross their minds that these requirements are incompatible with each other.  Basle 3 has loaded even more capital requirements onto the financial institutions and the UK is suffering (as is the rest of the world to a certain degree) from the retrenchment of most banks into their own domestic markets.  This has left Barclays, RBS, Lloyds and HSBC with a big hole to fill.  Understandably, with problems of their own, they are finding it difficult.  M4 is expected to be just 1pc YOY and actually down for the month which does make one wonder where on earth the £225bln of QE has gone.

With money supply likely to turn negative through the remainder of 2010 (in 2005-2007 it was around 12pc) we may be at something of a crucial point.  So now we are in a situation where we hope that the economy will grow but we fear that it will not, with state spending likely to be curtailed just as M4 flips into negative territory the omens are not exactly wonderful.

The FTSE has opened unchanged again and we seem glued to the 5150 level for the moment with 5110/20 acting as support and 5190/5200 resistance.

The Dow and S&P are in similar mode but with the psychological 10000 on the Dow and 1050 for the S&P within sight we may get an attempt to attack the downside.  The Mid July rally is now looking more and more like a bounce in a bear market and if this is indeed the case the downside potential is quite unnerving.  The problem with this is that equities do seem to be giving remarkable value versus other assets and so the tug of war between current value and future fears goes on.

Currency markets continue to drift in favour of the Euro as shorts continue to be squeezed. 1.3000 was breached again this morning (briefly) and spiked up to 1.3030 before slipping back beneath the mark.  Shorts have been under pressure for six weeks now as the inexorable rise from 1.1850 goes on.  The moves higher have not been in the form of steady grinds higher but more of reaching a level and holding steady for few days before surging to new highs.  If we believe this process is still in place we have now been at 1.29-1.30 for a couple of sessions and may be in line for another shift higher.  The movement can still be called a rally in a general bear trend and bulls will be noting that 1.3120 would reflect a technical 38pc Fibonacci retracement.

Sterling seems less keen on the upside with anything above 1.5300 attracting sellers.  The GBP/EUR cross is also moving steadily away from the Pound giving up another cent yesterday and we are now at 1.1765.  1.2800 seems to remain the longer term target but bulls are definitely not holding the upper hand for the moment.  1.1750 is a good support area and dealers will be nervous if this is breached on a close.

Gold has closed below 1186 but aside from an immediate shift lower there was no follow through at all but neither was there a rebound.  If we do not regain the 1186/1189 support soon then bulls may begin to get nervous.