The markets have recovered well, considering that a sharp decline in stock markets one day is often proceeded by another bid fall. This doesn’t seem to be the case this time, as US earnings continue to provide support for the markets and the bulls have been quick to benefit from a fall, by increasing their exposure to equities.
Higher petrol prices have sent UK inflation upwards, more than expected today, which means Mervyn King might have to sharpen his pencil next month and write to the Chancellor, if the trend persists. Not only has a decline in sterling led to higher petrol price,s which have contributed to this surprise number, but many retailers were reluctant to pass on the VAT hike straight away and have been gradually reintroducing it, having a lagging effect on prices getting higher. So, it’s not just overall inflation that’s on the up, but core inflation (stripping out energy and food prices) too.
Petrol at the pump is now as high as it’s ever been, showing just how much influence currency fluctuations can have on every day life. It was last at these levels when the price of crude was above $140 a barrel in July 2008, but now it’s nearly half that and we’re still having to pay through the nose to fill up our cars, due to cable’s 25% fall since then.
Overall the decline in sterling has made our imports a great deal more expensive and whilst consumers on the whole have struggled with the recession, they now have to contend with ever increasing prices. Not the sort of thing that the incumbent government will want to see as support for them continues to ebb away.
This morning the FTSE is looking to open in the black again, following a half decent gain in US indices last night and we’re knocking on the door of the 5800 level again. Confidence is being slightly buoyed by the recommencing of flights across Europe, which is boosting oil prices and airlines are expected to do well this morning. For the FTSE, resistance is seen around the recent highs of 5840, with near-term support the recent low around 5700.
There’s little in the way of economic data out today, apart from in the UK, where average earnings and unemployment numbers are being released this morning. At the same time the Bank of England minutes will reveal how the MPC voted at their last meeting, but as its election time around the corner, the employment figures will be more closely scrutinised.
Currency markets were mixed on the whole yesterday, with the dollar improving against the Yen, but declining against other currencies such as the Aussie dollar and sterling. The Aussie remained supported throughout the day, after their central bank meeting minutes showed there are hawkish on interest rates, as their mining boom continues to stoke inflation and sterling benefited from the higher than expected inflation data.
Inflation figures supported gold as it ran up to the mid-1145 area, before giving back much of its gains. Before the Goldman issue arose, the precious metal looked to have broken out of a “flag” to push on higher and possibly test 1200 again, but for now the bulls remain unconvinced. This morning we’re at 1145, and the bulls will be eyeing up a return to the 1160 area.
Oil made some progress, as a few airlines recommenced flights yesterday and the reopening of the skies has provided further strength this morning. At $84.60 now, levels to watch are 85.75 to the upside and 82.00 below. Inventories are out this afternoon to add some excitement later.