The FTSE looked to be opening 30 points or so lower this morning but buying from the open has taken us up to unchanged as I write and the general equity optimism commented on over the last few sessions is showing no signs of slipping in the UK. In a sense you can almost understand it as virtually every other asset class beloved of investors (both professional and retail) looks wildly overvalued in comparison to stocks. The worse the public finances become the more stratospheric appears the price of long dated Gilts but it would be foolish to get too entrenched in the Gilt bashing camp. While the total debt situation is undoubtedly worse than feared even a over the doom laden prognosis of a few months ago, interest rates look moribund for at least another 18 months unless inflation really does take off, but this appears unlikely at the moment (indeed the opposite seems to be the more likely at this point). Looking down the curve it is not unreasonable to speculate that the UK may have sub 3pc rates for three or four years.
Ocado’s float yesterday can only be described as poor and it is very easy to decry the whole operation especially as Waitrose is now beginning to deliver inside the M25 (which must take a huge swathe of its potential client base out of the equation) BUT it would be foolish to write them off completely. The piece of data that really worries me is the turnover/profit ratios. In three years time they are forecast to turnover some £1150m for a profit of around 40m, these are mighty slim margins on projected huge increases in sales (this year sales are expected to be 550m). It would not take much of an error to set this back. All in all this is one for those who like their investing to be exciting!
As mentioned the FTSE is unchanged this morning and we remain within the 5150-5250 range mentioned yesterday morning (high/low on the day proved to be 5247/5161). Above 5250 we run into 5300/10 and below 5150 there is still 5110/20 as well.
The FTSE is suddenly performing much better than the other indices having been the poor relation for quite a while. The FTSE/DAX spread had widened out to 1000 points where it was just a week or so ago but this has now pulled back to just under 800. Similarly the Dow is significantly below its June highs whereas the FTSE has held much more stable (even with BP rushing all over the place). Obviously the FTSE is more attuned to the international commodity, banking and pharmaceutical sectors than most indices and therefore linked heavily to economic prospects in the Far East rather than domestic sales and home nation exports which dominate many of the European Indices. In the current environment of imminent cut backs in the Euro zone (and the UK) one would expect the UK index to be performing comparatively much better than it has been doing.
Sterling remains around the 1.5250 level (which has been mentioned a few times here as seemingly its eventual level of desirability. Yesterday’s mess up in the Cable market by a major Dutch Bank is rumoured to have cost in excess of £25m but (oddly enough) if they had held on through the whole session they could have eventually exited at a profit as the market drifted slowly down all day to well below the morning spike. Resistance remains at 1.5320/50 as mentioned yesterday but as also commented we also run out of sellers below 1.5150.
The euro has pulled back from the 1.30 level having had a couple of goes at it and we are now around 1.2800. 1.2735/50 is good support and also 1.2690/1.2700 but below here we might find fear getting the upper hand once again so traders are likely to keep longs on a tight leash. Shorts have been battered for a month or so, so the last couple of sessions has come as something of a relief. For the short term the sellers seem to be the weaker players as the trend higher squeezes ever more harshly but we must always keep in the back of our minds that the woes of the Euro zone are far from over. When cuts in Italy, Spain and Greece actually start to bite (rather than just be talked about) the Garlic belt is likely to move to the front pages once again.
Gold and Oil fell through yesterday’s session but remained well within the recent ranges. Gold now needs to break through 1175 to maintain the current bear move but the pressure to hold above this point is becoming intense. The ‘hedgies’ are rumoured to be massively long and we are either going to go big for them or smash through on the downside forcing high volume liquidations. In four months time we will probably know the answer but for the moment the only real piece of factual info is that we remain above long term trend support and every time we have hit this weekly trend support line over the last two years we have bounced. Clients will watch for a close below 1175 as this may be a violent sell trigger but in the meantime most are playing from a long game.