Oh dear…just when things were looking really grim anyway, North Korea start to go off on the deep end.
The political tangle over the Korean Peninsula has always been one of the last few remaining hotspots of the cold war and even now no-one is quite sure which way China’s loyalties will fall. The Northern contingent have been their ‘allies’ for so long now, that it must be difficult for them to be simply abandoned, but the fact remains that the regime is virtually indefensible (even on ideological grounds). World unrest is not exactly dying down at the moment, with many countries/regions showing upsurges in popular unrest and with many European nations now going down the route of heavy spending cuts, the general under-swell of opinion is unlikely to lighten. Markets hate discord, but this seems likely to be our lot for the foreseeable future.
The FTSE has opened some 125 points lower, smashing straight through the support levels mentioned in previous comments of 4950-5000. We had a couple of weak attempts at this level in the last week, but this ‘blow through’ event is very surprising. The move also briefly opened a ‘gap’ in the market versus the low last Friday at 4955, but the immediate response on the start of trading at eight this morning was to close this and then move lower. We can now say that, unfortunately for the technical traders, the way down looks easier than the way up!
On the plus-side, the Americans are never happy at ‘damned foreigners’ moving their markets, and with the Dow now called some 200 points lower from yesterday’s close, we can definitely call this ‘an out of hours move’; historically, US markets generally reverse outside moves.
Currency markets are becoming almost predictable, with the Euro in the role of the eternal whipping boy and Sterling tagging along for the odd thwack as well. The Euro/Dollar cross is now back near the lows once again at 1.2225 as I write and Cable hovering around 1.43 as well. For all the good PR about the cuts from Osborne and Laws, the fact remains that they cut in the easy areas and left the gapping maw of health, education, social security and law and order completely unscathed. It appears that the brave new world is not actual all that ‘brave’ after all. After Greece, Spain and Ireland all announced swinging pay cuts, it seems that some ‘governments’ are more ‘governments’ than others. Of course, we must await the real deal with the budget in a month’s time, but the weakness of the Pound at the moment is starting to look ominous.
Traders have been swinging positions around like mad in recent days, with the majority of our clients taking the Euro and Sterling rally of late last week as a very good selling opportunity (which it subsequently proved to be), but now, with the markets probing the lows, the ‘better part of valour’ is coming into play and positions are being closed out to await events.
Yet again Gold has rather surprised by not screaming higher (although we have had a small rally). One might have supposed with a possible armed conflict, chaos on the currency markets, Equity markets in freefall and worries over many sovereign debtors that the Yellow stuff might be soaring, but not at all! Again, bulls might wish to be cautious as the events of recent weeks may indicate a temporary halt to the ever rising valuations (of course we are still in the long-term bull pattern, but it is becoming less certain) major support levels are still some way underneath current prices (at 1180, 1165 and 1140), so there should be no immediate fear of a spectacular reversal.
Oil inventories are forecast to be stronger as well, which is not helping the Crude prices (already heavily hit in recent weeks) and Nymex is now at lows since Sept last year, and even the long-term moving averages have now turned negative to go with the previous breaches of the long-term bull trend lines earlier this month; on a technical level (for those who believe them), this does not bode well.