Budget day today, so we can expect minimal market activity on the UK front until it is all over. The market to watch when Captain Darling stands up to speak will be the Cable (GBP/USD) cross rate as this tends to wing about, reacting to every little syllable and nuance, throughout the performance. This will most likely be Captain Darling’s last budget (there’ll either be a change of government or he’ll be axed in a reshuffle should Labour remain in power), but with Gordon breathing down his neck he won’t be saying anything radical, in fact it will most likely be a very dull budget indeed. There will be reiterations of the deficit coming under control, not reducing spending into order to threaten the recovery etc, etc, all with the specific aim of winning votes.
The FTSE is tentatively higher ahead of the highlight of the day at 12h30 and continues to loiter just below the 5700 level. This remains the near term resistance level, and if we head above 5700 there’s little in the way to stop us having a look at the 5775-90 area. That’s not far off the magical 6000 level – who’d have thought it a year ago!
Bulls continue to buy into the dips and just when the market looks to have reached a top and is due a correction to the downside, we push on higher. Ranges for indices will most likely be narrow up to lunch and even still during the speech, so really we can’t expect much until US markets open this afternoon.
Currency markets seem a little nervous, in particular sterling ahead of the budget. Cable has managed to hold onto the 1.50 mark for some time now, but not this morning. Currency traders are clearly positioning themselves early on expecting dollar strength to continue. Already having given up over 6% against the dollar this year, the sterling bears have probably had most of their pound of flesh, but with bounces remaining short lived there’s little appetite for pounds at the moment and sentiment is still against the UK currency.
Interesting market activity overnight and this morning has seen volatility in cable having dipped below 1.50, only to recover sharply back to 1.5020 before retreating in double quick time back below it.
The euro finally slipped below the 1.3435/50 support level, and is currently below the 1.34 level. Euro bears will be targeting 1.3320 and then 1.3280 as sentiment continues to be in favour of the greenback. A European summit tomorrow and Friday will be closely watched to see if the Germans will not give in to pressure from the French and insist that Greece sorts its own problems out.
Gold had a bounce yesterday, but is weaker this morning on the back of dollar strength. The precious metal continues to bumble around the 1100 mark with support seen at the lower uptrend line around 1095 and then below there some support is seen at the 1092-88 area. A break below here might open up the flood gates for a sharper correction to the downside, where bears will be looking at the 1040 region. Bulls are only too aware of the sort of corrections that gold is susceptible to after Friday’s little plummet from 1122 to 1105 in just a few minutes.
The dollar strength is taking its toil on oil which is over a buck lower this morning just below the $81 level. Oil inventories this afternoon will provide its usual entertainment no doubt. The range for the black stuff has been tiny so far in March and at some point there’ll be a sharp move in one direction or another. Clients think it’ll be to the downside and it’s difficult to see oil going higher after it’s failed to keep up with rising equity markets.