So the Budget is over and markets appear happy to give the government the benefit of the doubt.  The announcements seem very harsh, but as we all know there is a long way between speech and action.  The cuts, overall, are not actually that fierce (2pc a year for 5 years would not be considered anything remarkable in the private sector) and seem to be focussed on unnamed ‘Ministries’, whatever they are. So, no need to worry everyone, no actual impact on services (health, education, police etc) we can manage to address everything without many people noticing very much. Merely activating a hiring freeze for several years would probably get most departments quite a long way down the route especially when you take into account retirees as well as natural wastage.

On the other hand the Tax rate has most definitely been increased and it is interesting to note that the Tories are still using the Labour word ‘fair’ to describe taxing higher earners more to give relief to lower earners. It has always seemed odd to me that ‘fair’ describes the practice of taxing people progressively more when they (presumably) actually utilise your services less (public services, private education, Private medicine etc) and most could be argued to have already contributed more than their ‘fair share’ to the overall pot.

From a personally point of view though, the rise in CGT makes Spread Betting look even more attractive, especially as Spread Betting prices are in most cases actually better than the ‘real thing’.

Markets are opening on the weak side after the increase in the bands of the Renminbi actually caused a fall in the currency as Chinese State Banks came in selling! This makes rather a mockery of the continued assumption that the Yuan will always just move to the top of any band announced. The idea that currencies are merely controlled by the export/import equation is so contrary to experience that we should not be too surprised at this.

The FTSE is being called at 5190 in early action and clients are buying the market looking for a swift return to the 5250 median point of the last week or so. As mentioned yesterday we seem to be oscillating around this median level, occasionally attempting the up side up to 5290/5300 and likewise the down. Neither direction appears to have much follow-through at the moment. The Dax is consolidating at the higher levels having given up the new highs for the year on Friday. The pull-back though does not seem aggressive and the fall seems to have been mainly US inspired anyway, clients are buying the contract in the low 6200’s as well.

The small falls from recent highs in the indices are bringing out the buyers from our clients and traders must be cautious that this is not reflected across the market. If too many short/medium-term players are seen to be buying, there may be pressure to force the market lower in a rolling bear squeeze.

Currency markets are quite flat in the main except for the Pound, which is continuing to gain strength after the Budget speech. Bulls will be looking for a close above 1.4840 (it is currently at 1.4850) to possibly confirm the move higher. As with much that happens around the Pound though, directional moves can be turned on a sixpence through no very good reason that can be noted. Resistance was at 1.4840 as mentioned, above here at 1.4865/80 and then at the long-term downward trend line resistance (where we failed last Friday) at 1.4950.

For the Euro the pressure seems to have started to revert back to the downside as rallies are getting harder to maintain. This said support is at 1.2250/75 and dealers seem nervous of selling below here. If the flow of news becomes even scarcer through the summer months the natural direction may well become a slight drift higher as Euro shorts slowly exit from positions. It seems quite some time now since any new information on the sovereign debt situation became available.

Gold is consolidating around 1240 and traders still seem very happy to remain long. The pull-back of Monday appears to have been contained and buyers are coming back in looking to take advantage of the marginally lower prices. The support mentioned yesterday (1233) held very well through the session and our clients were continual buyers every time we dipped under 1235. There is minor resistance at 1242/45, which may bring out some profit-taking, but short-term longs will probably remain in place, as long as we remain above the recent bullish trend line (now at 1234).

Oil is reflecting the other markets and has fallen from the 79/80 level back to 77.50 this morning. At current prices, the commodity relies on supply issues to drive higher and the worlds producers (excluding Iran) seem to be slightly more stable these days. It is unlikely that current world growth rates will cause shortages, so bulls will be hoping for political friction for progress from these prices.