Ouch

Markets are once again looking a tad nervous, with sovereign issues continuing to impact on domestic equity markets.

Merkel continues to do the tired old rant at ‘the banks’, but one really does wonder what on earth she thinks they are doing wrong at the moment. The current problems are entirely State created as democratically elected governments have massively over spent in their various attempts to retain power. This has been compounded by the undoubted knowledge that the true level of indebtedness of nation states has been hidden away in manners that would gain the perpetrators a stay ‘at her majesty’s pleasure’ if they had been made in the corporate world.

On the currency front, our comment yesterday that if the Euro was not moving in the accepted direction then the opposite was likely to happen proved rather more prophetic than expected. Weak shorts were well and truly stomped on, as sellers, expecting the currency to continue to drop in a straight line all the way to parity with the dollar, were forced to cover positions as the Eur/Usd cross rallied from 1.2350 at six yesterday evening to a high of 1.2670 early this morning. The weak bears now appear to have been squished and the currency is slipping again in early action down to 1.2500 as I scribble.

The FTSE hit a low of 4970 in afterhours trading last night as the Dow and S&P slumped, but this morning has seen something of a reverse reaction, with the index now almost unchanged on the market close at around 5060. Oddly enough, 4970 is bang in the middle of the support levels mentioned on Monday of this week as 4950/5000 has been the failure point for every bear move of the last eight months. Trading remains fast and furious and we are still seeing 50 to 75 point shifts on a moments notice both up and down. As commented yesterday, this type of activity is generally not beneficial to bull markets or to investors getting involved and they will probably continue to sit on their hands.

The Dow managed to flirt with the 10000 level last night, hitting a low of 10006 in the night session at just around midnight. In absolute yield terms, 10000 means nothing at all, but in confidence terms it might mean a great deal indeed. Confidence seems to be draining away and the US weekly employment data yesterday did not help showing an unexpected sharp jump in claims. In reality, all the western economies are still very fragile with the fear that the only reason for the stability they have been showing is merely down to continued Government fiscal stimulus.

Gold continues to drop and is now at 1174. As mentioned over the last week, the Yellow metal is performing very strangely with all the usual signals of the last few years being ignored. Flight to quality in the Government bond markets, with the Bund reaching new all time highs and the Gilts and US Treasuries also experiencing massive rallies has not translated into a flight into Gold as well. The problem may be (as mentioned on Tuesday) that the price is now so high that only ‘investors’ (or speculators) can afford it. In this scenario, the commodity becomes not a hedge against disaster, but a possible contributor to that disaster. No doubt the world will continue to buy Gold, but traders should beware the talk that it can only move in one direction.