The markets are a little perkier this morning mainly on the back of US markets managing to recoup some of its losses after some better than expected manufacturing data but in the absence of breaking to new highs the markets look a little over extended just at this moment in time. The Nikkei has lost some 3.5% this week and other Asian indices have been weak. The German Dax has still failed to mark new 2009 highs lagging both the FTSE and Dow.
The economic data this week has been mixed and while the markets look to be in a state of flux it would seem that economists are becoming more and more unsure about how the recovery will pan out. This week’s Bank of England minutes revealed divergence between its members and whilst their growth forecasts are way more optimistic than the majority of analysts. Inflation numbers both here and across the pond came in slightly higher than expected, but this hasn’t done very much to change interest rate forecasts which still broadly point to a hike in the middle of 2010.
So the differing views and projections, the guess work and finger in the air measurements for quantitative easing, mean that the markets are trying to look beyond the year end, through the crystal ball to predict just how the first half of 2010 will look.
Yesterday’s UK public sector borrowing numbers came as no surprise and simply confirm that we’ll continue to slip deeper and deeper into the red. It will take years to rebalance the books and in the meantime tax receipts will continue to decline as unemployment rises through 2010 possibly not even to peak until 2011. The end result is higher taxes for all, longer years working and less services in return.
In the absence of any meaningful economic data today investors will be looking ahead to next week when GCP numbers are released from the UK, US and Germany. These are the second releases for Q3 but are still important as it is expected to confirm the UK is still in a technical recession albeit not as badly as the first reading and the US number is expected to be revised downwards.
For now though the FTSE seems content with sitting on its hands and drifting sideways around the 5300 level. Currency markets are mixed this morning but largely in favour of the dollar. Cable is heading lower as once again it fails to test the 1.7000 level sticking within it range that it’s failed to break out of over the last FIVE months! Currently at 1.6566 it looks like it might have a run at 1.6495 today which is where near term resistance is seen. For euro dollar once again we seem to be giving up around the 1.5000 level trading at 1.4885 at the time of writing with support at 1.4840 then 1.4810. The pair has formed a little downward channel for now so each run higher looks to be short lived.
The theme of this week has been very much a respite in the flight to riskier assets with gold making a little ground but ever since Monday failing to make further gains. Oil looks to have found a ceiling as it struggles to get beyond the $80 level (although this doesn’t seem to have made any difference to prices at the pump which seem to go higher and higher!). The dollar has found decent support and indices are failing to make new highs and it looks like today’s session could be a very quiet and uneventful one.