Things have been pretty ugly so far this week but last night the US markets proved that any issues in Europe are not much concern of theirs. A bright start has meant a large chunk of yesterday’s losses have been recouped, but we’ve pulled back from the highs and not opened nearly as strongly as we had predicted.
This morning’s bounce has a whiff of “dead cat” about it as investors continue to reel over the week that’s almost over and best forgotten about. Cracks have appeared in the recovery and FX markets in particular have shown alarming moves that indicate they are preparing for something bad.
The juxtaposition of course of a currency that is tumbling is that the equities of that country suddenly become a great deal cheaper and since some 70% of revenues for FTSE 100 companies come from abroad, foreign investors will sit up and take note.
There’s a raft of economic data today with GDP numbers from the UK and US. We’re expected to have crawled out of our recession and post a measly 0.2% for Q4 of 2009, but an improvement to the first release which disappointed with a rise of 0.1%. The revision upwards is due to better than expected industrial production in the UK, but there are still major de-stocking issues and spare capacity that are completely capping any sort of meaningful growth potential.
US GDP numbers are at lunchtime which are expected to be revised downwards from 5.7% to 5.6% and then we end the day with the University of Michigan Confidence numbers which will be hard pushed to rise after Tuesday’s disastrous consumer confidence.
Cable took a big blow yet again, smashing through support levels and it looks like there’s some panic selling. There are calls for a possible return to the levels last seen in the 1980s – that’s almost parity, so a whopping 35% lower than where we currently stand!
That would seem a little extreme for this commentator, but as long as there’s speculation surrounding a default by Greece, the EUR/USD and cable will continue to weaken. Even if a possible default did actually occur then we might see a bounce as the news would have been fully priced in, but then investors will fret over a complete collapse of the whole EU monetary union and any bounce would most likely be very short lived followed by some explosive selling.
This is why if it comes to it, the richer EU nations will have to bailout the poorer ones or the European dream is over.
The Yen has been one of the main beneficiaries of this whole debacle which will really turn the screw on Japanese exporters, in particular Toyota who are already in dire straits.
Gold once again was supported by 1090.0 and were back around 1100.0. For all the weakness in the euro and the negative sentiment out there at the moment it’s very interesting to see gold hasn’t made for the highs again. This is an indication of the amount of exposure many speculative investors currently have to gold and a sudden unwinding of these positions could lead to a sharp sell off.
$80 has once again proved a step too far for the black stuff as crude posted its biggest decline in three weeks. Oil will continually struggle if as long as the economic data disappoints. Fewer jobs, means less income, means less driving, means less holidaying, means less use of oil. For now, the major support is seen at $76.60 and below there $75.30. No prizes for guessing where resistance is.