The markets had their feathers ruffled yesterday by the IMF’s proposals to not just tax banks, but the entire financial sector. It’s a bold move, that at least is clear in who it’s targeting,; not just banks this time, but everyone. Many firms across the financial sector will be scratching their heads trying to understand why such a punitive tax can possibly be of any benefit at a time when most economies around the world are on their knees. To take out two to four percent of GDP in tax will send many countries spiralling back into recession, not least the UK, due to the size of our financial sector.
The additional cost of borrowing will also affect lending adversely, and whilst the IMF doesn’t aim to prevent the way banks behave, it will hugely change the way they lend to the detriment of the availability of credit. The answer isn’t the need for more regulation and higher taxes, which will cut off the hands that feeds the wider economy, but to reform the regulatory environment that currently exists and clearly hasn’t worked.
Yesterday’s decline has been met by yet another bounce off the support levels and we’re back in the mid 5700s again, with mining and banking stocks leading the way. The range for the FTSE over the last few days has been consistent, with just beyond 5800 capping gains and the 5700 area a clear and present support area.
Rather unsurprisingly, the UK’s public finance data this morning has shown our fiscal situation to be continuing to deteriorate. The numbers might be a little distorted by the seasonal factor of the usual public sector rush to get spending done for the end of the financial year; however the situation is getting no better. It’s no wonder Tories claim that we might have to go to the IMF for emergency funding, but even this commentator is sceptical of such a necessity in the event of a hung parliament.
Retail sales have also been released, coming in a little lower than expected and although they have risen, the market was expecting a little more impetus from the improved weather and slightly later Easter.
There’s no doubt that we’re returning to the shops little by little and it’ll give Gordon something to crow about today, but the data for the UK this week has been mixed after the poor employment data yesterday, and the electorate isn’t focusing on these numbers anyway.
Tonight is the second leadership debate and the three prime minster wannabes will thrash it out on international affairs. It should be interesting to watch as the Europe question, which they all have done well to avoid thus far, will be raised and there are serious divisions amongst the parties.
Riskier currencies continue to benefit from rallying stock markets, as the dollar suffers mild losses against sterling, the euro and Aussie this morning. Cable remains above 1.5400 and seems to look comfortable, but things might get interesting later on this evening during the leadership debates. Before them however there is the weekly US jobless numbers and US PPI data, which are expected to fall and rise respectively, which in the usual course of business would be dollar positive. For cable the levels to watch are today’s high of 1.5475 then 1.5525 and to the downside it’s 1.5370 and then 1.5325.
Gold continues its grind higher, and it was knocking on the door of 1150 earlier, but has drifted back a bit to the mid 1140 region. The precious metal continues to be supported by the Greece situation and its price in euros is just off its all time highs set earlier in April.
Oil, like gold, is also taking a respite in the mid-$83 area. Oil has traded sideways so far this week and not even yesterday’s inventory numbers could force the hand of either the bulls or the bears. The 82 level remains support, while 86 is the hurdle for the bulls.