We commence the week strongly and once again bounce after a few days of declines with clients have reaping the rewards of buying into last week’s dip. Just when it looks like the market has got a little over stretched and a correction is expected to follow, the market maintains its momentum and he head higher again.
So this morning the market is heading back towards the highs and it’s take over fever that’s gripping investors as other potential suitors for Cadburys emerge from the wood work and the likelihood of a bid war becomes more real. With the share price now above £8 Cadbury’s shareholders need to be wary of getting too greedy and their potential buyers simply walking away. Just as we saw with Sainsbury in 2007 when the stock rose from £4 to £6 amid take over talks, by October the deal fell apart and the stock plummeted back to £4. It then suffered the fate of the stock market crash to hit a low of £2.50 and is now hovering at just over half the price of its 2007 high.
Cadburys is in a similarly competitive market and they have to be careful that they don’t suffer the same fate as Sainsbury’s did by seeing the deal scuppered and have their share price languishing at half what it is now.
Resource stocks are also assisting in today’s rally, albeit on quite thin volume, and investors seem to be looking to the riskier assets ahead of a big week on the economic data front. This morning we’ve already seen some decent PMI manufacturing and services data out in Europe and these figures are often considered to be a very good measure of what to expect in the GDP numbers. Later we see US existing home sales but tomorrow sees GDP numbers from Germany and the US, followed by the UK on Wednesday. They are all revisions of Q3 numbers that we’ve already seen and a mixed bag is expected with US due to be revised down and UK revised up slightly.
The strength in European indices means that US futures are indicating a positive start to trading when US markets open this afternoon. At the time of writing we’re calling the Dow to open 90 points higher at 10408 and the S&P 12 points higher at 1103.0. The Dow is very near its 2009 highs with resistance around that level of 10440 and support is seen around 10270. The S&P, which has lagged the Dow recently (usually it leads the Dow), is a little further off its 2009 high with resistance close by at 1106 and then 1114. Near term support is around the 1084 mark.
The move higher by equities means that the dollar is under pressure and the dollar index has taken a swing back down towards the 75 level. It seems after all its hard work of trying to recoup so much of its losses last week the dollar bears have bashed it back into submission in a short space of time. As a result, cable is back over the 1.6600 level finding support just below its 20 day moving average, but can it summon the momentum to have another run at the 1.7000 level as it did a couple of weeks ago? Euro dollar is surging ahead to just below the 1.5000 level, where for now it seems to be backing off a little once again. Momentum for euro dollar continues to fizzle out around the 1.5000 mark and sellers have been creeping around here this morning.
Gold is unsurprisingly benefiting from the dollar’s weakness which is adding to the late spike on Friday night. Now into record highs once again the rally looks unstoppable with very few pull backs that are short lived when they occur and the counter rally extending the precious metal further and further higher.
Oil is making a run for the $80 level although it’s still a buck or two short. Similar to euro dollar and the 1.5000 level oil is unable to hold onto $80 with these assets once again being out shinned by the yellow metal.