Sideways movement in the end yesterday in most markets as everyone pauses for breath.
News that the middle east sovereign funds were dumping a sizeable tranche of their Barclays stock for a nice chunk of profit hit the Banks stock but the temptation to think in terms of clearing the way for a Sainsbury bid got the ‘leaping to conclusions’ traders jumping up and down in excitement.
Barclays ended the day down about 16p and Sainsbury up 18p so there was at least a bit of symmetry involved!
All the indices are being called unchanged to slightly higher in pre market action and it is tempting to say that the late sell off yesterday afternoon and evening as been easily defeated. Growth is strong enough to support dividend numbers but not enough to warrant inflation fears or aggressive interest rate hikes. Almost perfect for equity holders. On top of this there are still vast sums sitting on the sidelines (where they have been for much of the year) looking for a place to go. In this scenario of a slow steady drip feed of funds into the markets rather than a huge, one off, splurge the ‘top’ is proving to be rather more elusive than many would have expected.
FTSE is quoted at 5250 in early markets up 5 points and dealers will be eying the 5300 level as a resistance point. This level proved supportive in January ‘08 and to a certain extent through July to the break down in September ‘08 last year. Yesterday we peaked at 5298 and quickly backed up, our clients seem quite confident of another ‘test’ of the resistance and have been buying into the weakness. The rally from July shows no signs of flagging even if it seems at times to be almost too good to be true.
The Dax has printed the same highs yesterday and last Friday at around 5887. Both times we had an immediate negative reaction with 160 and 100 point falls. Prices this morning at 5840 may be tempting traders into another ‘test’ of the resistance. If it breaks there may be some solid stops going off around the 5900 region which could cause a spike but (naturally) if we get near to 5880 and above we will have to get past the sellers who will be piling up hoping for a repeat performance of the last two attempts.
France has put its head above the parapet muttering about the Euro (not without reason). The Chinese quasi link to the dollar is putting intolerable pressure on the other major currencies (Swiss, Yen and Euro) and the Europeans are getting a tad miffed that the Euro is increasing in value versus the Yuan when there is a massive trade deficit in China’s favour. I do not believe that the moment for central bank intervention has yet arrived but dealers should be aware that it is a possibility. Central Bank manipulation of the currency markets went out about 10 years ago but, given their intervention in just about every other financial instrument in the last year or so, it cannot be ruled out. But if the euro/usd cross peaks above 1.50 with no sign of selling there could be a ‘bit of excitement’.
Sterling has been improving for several days now and is back above 1.10 versus the Euro and close to 149 against the Yen. 147-151 does seem to be a sort of pivot area for the pound yen cross since October last year. Sometimes it acts as support or resistance but when it fails the reactions are quite dramatic. At the moment we are on the way up and in the middle of the range. A break above 151.50 might be interesting as would a reversal below 148/147.
Oil finally put in a down day yesterday after eight straight gainers. We are still around 79 bucks so the pull back can hardly be said to be dramatic and might have more to do with the fact that we hit a nice round number at 80 dollars (which was probably the target for quite a few bulls). As OPEC stated yesterday there is quite a bit of the black stuff around in global inventories so we cannot expect much help from this quarter on increased production (and anyway they will be happy with a 75 to 100 dollar price. We have commented many times over the last year that OPEC’s target was $75 so we can hardly be surprised that a) it has reached it and b) it has now overshot. So, on the one hand, we have good supply but, on the other, fears that economic growth will quickly use this up before new production capacity can be effected.
Gold also drifted from the highs and the mid to high 1060’s again proved too rich while there is no real appetite to sell off either. We have now spent a couple of weeks bashing around the 1045 to 1070 range (roughly) and with the price this morning at 1059 we can hardly be said to be threatening either direction. Clients continue to range trade very successfully.