News this morning has Vince Cable once again going over the populist bank bashing route as he attempts to solve the financial crisis by….. errrr….. forcing banks to lend more money to struggling companies. In the same breathe he then goes on about ensuring that the country does not endure another credit crisis (!!?)… ummm … and stating that banks ‘do not get it’, asking why they are paying out dividends and bonuses when they could be lending the money. Far be it from me to point out to such an obviously intelligent man but the last time I looked all the banks were public limited companies (not agencies of the government). Aside from Northern Rock no other bank is ‘owned’ by the state and they have duties to their share holders to lend responsibly AND to give return on their investment (most bank shares are held by Pension Funds, Insurance Funds and Private Investors, in the long run ‘you and me’ ). I have yet to see any bank whose remit is to “act in the national interest”. It would serve no purpose at all if the Banks were undermined once again in being forced into lending indiscriminately to one and all. A policy, I might remind everyone, which wiped out HBOS (not the sub-prime problems or any weird trading losses made by dealers in the City).
A lovely saying is that “the road to hell is paved with good intentions” and at the moment (from regulatory pressures, Basle II and III, and pressure from very short sighted politicians) Banks risk being squeezed down this route.
Markets on the up this morning with the FTSE called some 20 points to the good and investors certainly happy to go along for the ride for the time being. Fears over ‘double-dips’, inflation, deflation.. small green furry creatures from Alpha Centuri … seem to be on the back burner for the moment. This said we really need to close above 5340/45 as this has been the peak for the last two moves higher and 5360/75 has been something of a support/resistance point since November last year. Pressure will presumably remain to keep markets in the recent trading ranges especially as we are still in the low volume summer period.
BP looks set to replace Tony Hayward probably with Bob Dudley as the board decides that a new broom might curry favour with the US administration. In hindsight (aside from his initial comment that the spill would be minor, presumably due to erroneous information provided to him) it is difficult to see what more Hayward could have actually done and his replacement now does leave something of a sour taste in the mouth. That said the markets will soon forget, as they always do, and now that the leak appears to have been plugged we will almost be able to draw a line under the whole story. In a few years time even the Oil will be a fading memory. So what is the value of the company with such a legacy? The major problem for investors is that BP will be the beggar at the window for any drilling/supply contracts worldwide as no democratic government is likely to strike a deal with them just in case something goes wrong. As with many decisions made these days these will prove to be short sighted, as the removal of one major player will make ‘block’ bidding lower and contract costs higher, which makes BP’s competitors stronger and the company itself possibly holed below the waterline.
On the currency front the pound has made it back up to the 1.55 level this morning (but no higher). Back in April we reached this level as well before the run in to the election exerted its bearish influence. Our clients seem to be expecting a repeat of this price action and have been selling in early trading. This is a very understandable action and does not look to be (currently) an unreasonable proposition. Above 1.5500 the next point is quite close at 1.5530/35 which gives a reasonable stop level for new bears to focus on. Above this point though we might be looking at a much higher level. So, something for both the bulls and bears to be looking at on the off.
The Euro is pretty much unchanged over the weekend at 1.2920 and, here too, we are close to a solid resistance level in this case at 1.3000. Dealers tried to short the currency through Friday but were caught out by the afternoon/evening rally. The Bank stress tests seem to be a medley of ‘white’ and ‘wash’ as banks were permitted to omit ‘investment’ sovereign debt from the mix. Of course what we consider to be in an ‘investment book’ and a ‘trading book’ can be a moot point. I once got into a spot of bother when I defined an ‘investment’ as a ‘trade’ that had gone wrong.
Commodities continue to oscillate over the same old ground with Gold seemingly stuck between 1185 and 1205 as the bull and bear argument waxes and wanes. Dealers are unlikely to take too much on just at the moment but the weekly charts seem to be indicating that the long term bull trend line has held over the last fortnight and bears must be cautious of a sharp reaction higher. This said we are still close to the support level and clients must beware a failure move to the downside. Longs are now getting ‘negative’ monies on Repo for the Spot price, i.e. spot gold is currently higher than the Futures price (normally it is lower to compensate for having to pay out now on spot rather than agreeing to pay in the Future), which is normally an indication that there are a lot of ‘weak’ longs out there. If the price drops below 1175/78 we may get a large number of forced liquidations. Dealers will be watching for a break above 1205 and 1212/14 on the up side and the aforementioned 1175 on the down. In the meantime we are in a range trade situation.
Oil held underneath 80 bucks again but there is little in the way of selling reaction just yet. As with virtually all asset markets we continue to be in a bull phase and it is difficult to expect weaker prices with the UK, US and Euro busily stimulating on the quiet.