Well things are a little brighter this morning, but only a little. While the global leaders back slap each other and continue to crow about saving the world, investors are pausing for breath and reflecting on what has been a small bout of profit taking following a tumultuous last couple of days.
The central bankers have all been ready to admit that the economies are turning the corner but they remain apprehensive in hyping up the recovery. Prolonging the stimulus packages might just be a shrewd move, we’ll have to wait and see, but for now it seems to make sense to keep drip feeding rather than turning off the life support abruptly. The aim of course is to prevent a “W” and ensure the return to growth is a prolonged one, without causing a jump in inflation.
At this point in time inflation has stopped falling and along with the rest of the economic data that has been turning upwards, it looks to have stabilised and even started to drift upwards. One of the major threats is oil prices which could cause inflation to spiral if we see a similar spike to the one we saw last year, but as the stimuli dry up its hard to see demand jump through the roof and cause us to see $150 again any time soon. Pressure from consumers is also unlikely to be the catalyst for higher prices into next year, so for now it would seem that the action being taken is prudent.
For now the FTSE is on the back of a few declines and on the daily chart we are nearing the 20 day moving average which is hovering around the 5000 level, so a test of this area can’t be ruled out. At the time of writing we are looking to test this morning’s lows and as yet there’s little evidence that buyers are rushing in to pick up stock as they have done so eagerly in the last few months every time there’s been a small correction. That said, this isn’t the case for our clients who’ve been opposing the move over the last few days, buying into the weakness and expecting a bounce back towards the year’s highs. Usually in the run up to the end of a quarter you see a bit of “window dressing” and equities can see some buying, but for the time being that doesn’t look to be the case this time round.
Things might be very different this afternoon however with US Durable Goods data at 13h30 UK time and then Michigan Confidence and New Homes Sales at 15h00, which can often be a market mover. Durable goods are expected to rise 0.3% and when you strip out transportation the rise is expected to be 0.8%, although these figures could be wide of the mark as Boeing’s aircraft orders that doubled in July have seen a marked decrease in August and the last ISM new orders index rose some 10 points, so ex-transportation could surprise to the upside. Michigan confidence could also see a rise from 70.2 as some consumer confidence figures have been better than expected recently. But will this be enough to pick up for these lows? We’ll wait and see.
Oil is trying to regain some of it losses over the last few days, albeit meagrely. We sit well below the upward trendline now which for Nov Brent is around $69. Bears of oil will probably be targeting the $62 mark and an even more aggressive move lower could see us test $58. Further evidence of inventory building will most likely keep a cap on oil prices and it shows that theirs is a huge amount of oil sloshing around above the ground.
Gold is a funny one, when you expect the price to rally on the back of equities suffering a pull back, it too has dipped below the $1000 level once again. However, there’s one lucky Staffordshire treasure hunter who won’t be too disappointed with that!