A Brave New World for Capital Spreads with our new trading platform launched today. Hopefully you all like it. We will be launching a whole programme of new functionality over the next few years and this is the first move to the new coding.
Markets are on the up this morning with no bad news over the weekend giving investors just a bit more confidence.
All the woes in the newspapers and over the wires is mainly focused on sovereign weakness as nation state leaders spend to ensure re-election … errr sorry that should have read “spend to ensure growth”. The point about the credit worthiness of countries such as Greece and Italy is that they are part of the whole EU bloc. It is not credible to imagine that they will be forced out of the union as the mere mechanics of recreating the Lira and Drachma is just not possible. This means that they will remain in the Euro and will not be permitted to ‘default’ in the usual meaning of the word. As with all nations they have what normal companies do not, namely a secure source of revenue commonly called ‘taxes’. Times will be tough but a default scenario is not yet on the cards.
If we accept that Greece will not be thrown out (this is of course just following the thread of the argument above) this leads us to one inescapable scenario… the Euro must eventually devalue from its current level. Otherwise industry in Southern Europe will just be priced out of existence. German employees with better productivity levels are accepting zero wage increases which will leave the Spanish, Portuguese and Italian even further in the mire and in danger of slipping into a deflationary spiral.
Markets, as mentioned are called higher with the FTSE looking to open at around 5370, the highest since the mid January fall out. There is quite a bit of resistance from 5370 up to 5385 from last November/December and there was something of a battle around the 5375/5425 region at the turn of the year as well. So the going might become harder in the near term. If markets make it thorough this region though there will be little to hold us back against a retest of the Jan higher levels around 5535/65. The index had five up days in a row last week (on an ‘our quote’ basis) which is unusual especially as the news was pretty grim but the ability to move higher even in adverse conditions cannot be ignored as just an aberration.
The S&P has finally made it above the 1105/1108 level this morning although the follow through seems a tad weak. Like the FTSE there is a whole swathe of resistance just above current prices from last year with the market continually breaking through 1110/1112 during trading sessions only to give up the ghost at the death. The current price at 1112 puts us right in this region. We need a break above 1112/1120 to confirm the renewed strength and if this happens (like the FTSE) we may then see renewed confidence for an assault on the peaks.
Currency markets are showing a slightly weaker dollar this morning with traders buying the Euro and Pound as we once again get into the strong everything/weak dollar trading scenario. Gold/Oil/Equities etc all seem to feed off any weakness in the greenback and dealers will be watching the wires for confirmation of the turnaround in the dollar’s fortunes.
The Euro is struggling to break back above 1.3640/1.3660 which has proved something of a support/resistance over the last few weeks. Clients seem confident that it will succeed with Euro buying across our boards but cautious traders will probably wait to see a confirmation of a break higher before getting involved. The pound has also bounced from the extreme lows of last week when we reached 1.5345 at one point but it must be admitted that the rebound has not exactly been of the convincing variety. Dealers are more likely to focus on weakness than strength and we must beware the temptation to get long because “it has fallen so far already”. This is not to say that a rally is not possible but that the downside has proved an easier direction for weeks and we will need more than just a cent or so rebound to confirm a turn in the market.
Gold has oscillated between 1098/1102 and 1122/27 over the last few sessions and this morning we are back at the top of the range. Traders will be encouraged by the resilience of the Yellow Metal in the face of the overall strengthening greenback and with other asset classes recovering their poise as well. With long term debt giving better and better returns precious metals are performing extremely well given their intrinsic ‘capital return’ versus ‘income return’. Either we are in an unsustainable bubble or the seeds are being sown for another major move higher. In the current scenario of higher inflation and very low short term rates the odds must favour the latter but things can change.
Oil is also at the top of the trading range and as commented last Friday morning a single attempt at the 80/80.50 range would have been unusual. We are now at a cusp point (as we seem to be in so many markets today) … a break higher to the 81 level may be a good indicator that everything is moving into the green zone.