So the Tories are now deciding that political power is more important than the economy. In their desperation for office they have committed themselves to unilateral taxes on the banking sector.
Let us extrapolate this.
Whatever you think of banks they are just businesses, in the end like any other business. Businesses have stock holders who demand returns for their money, staff who want to be paid the best deal they can get and Directors whose responsibility is to all these people NOT to the country in which they happen to operate.
Now let us imagine a country (with, as it happens, an appalling twin deficit problem), which taxes its highly paid (decision making) staff far more than its neighbouring states and imposes corporate, windfall and, now, new levy taxes well above those same neighbouring states. Those neighbouring states are just as stable both financially and legally as the country in question, and have more lenient capital requirement and regulatory regimes. A country that burdens completely portable businesses with unwarranted taxes deserves to lose them.
It does not take much to envisage the conversations going on in board rooms across the City at the moment. An indicator to watch was the departure of the CEO of HSBC to Hong Kong. He has given up all the political, envious journalistic reporting and 50pc tax rate problems for the Far East and 15pc earnings tax. Just this one person will probably cost the exchequer a million quid a year, and you can be sure that where the CEO goes the rest of the senior board will follow.
The hatred being generated against the City is self defeating, invisible earnings (i.e. UK financial exports) for the UK are massively positive, far more than the numbers talked about in state aid (which anyway was not free, much as some might like to say). London has maintained its financial hegemony for a century or more but ignorant politicians are risking it all merely on getting their five years of ‘power’.
This morning sees the FTSE being called 20 points lower at 5630 in early pre-opening trade as the Far East puts in an anaemic session. Traders are likely to maintain shorts in the FTSE as we have continued to batter unsuccessfully for several weeks at the 5650/5700 level. The charts seem to be indicating either a massive break out to the upside or a top formation with subsequent pull back to the low 5000’s. At this moment it is difficult to estimate which is more likely. With interest rates continuing on the weak side the chase for return is maintaining the various global indices but we may start to worry rather more on this front as 2010 grows older. With 10 year Gilt returns around the 4pc mark they are already giving better/comparable returns than equities and the performance of the FTSE over the last 10 years does not exactly make much of an argument for long term value equity either. Eventually the QE support will be kicked away and the BOE may (but only possibly) actually start to offload bonds as well. If this occurs, then yields on long dated Gilts will soar.
Support in the FTSE is at around 5580 to 5600 and resistance at 5650 to 5660. A close above 5660 would be quite positive as the markets have struggled to maintain levels higher than this. The bears will be eyeing the early march rally as a possible weak point and a break and close below 5580 may give traders a target of 5400.
Sterling has reversed last fortnight’s rebound and we are now back at the recent low range area. Support has been seen below 1.4950 several times over the last month with numerous attempts to break into new low ground but the support has always managed to hold in the end. Unfortunately the temptation is to say that the trend is definitely Sterling unfriendly at the moment and while it is true to say that much of the potential bad news is already known and therefore should not be a surprise this is a long way from suggesting that our political masters have any appetite (either Tory or Labour) to attempt any real solutions.
I have spent the last couple of weeks in Dubai and have read much of the financial outpourings in their equivalents of the FT. It is educational to read, every day, about the number of big/huge European corporates who are pitching for Middle and Far East debt re-financing at the moment (mainly from sovereign funds or one kind or another). Entirely due to the fact that the European banks are having to scale back lending to get into the new Capital requirement levels. In the Middle East their cash influx is obviously the consequence of the current price of Oil. One fears that if the price starts to slip then the lending availability will slip alarmingly.
While I, like everyone else, curse at the price of fuel at the pumps the consequences of a failure of this source of funding on UK and European business is actually very worrying. On the basis that the markets will move in the direction that causes the greatest pain to the greatest number of people it is tempting to postulate that the Black Stuff might be in for a bit of trouble.