Was yesterday the blow out move to the downside; the move, either up or down, that signals the end of the current trend?

This will be the question in quite a few traders’ minds this morning. As hinted at yesterday, the US did not like the Asians and Europeans smashing ‘their’ market lower, and spent the whole session carefully reversing the whole move. As we stand this morning, a Dow trader (having missed yesterday’s session) would be forgiven for thinking that nothing much occurred yesterday, as we are almost exactly at Monday’s close having traded almost 300 points down at one stage. For all of the time spent below the mark over the last week, we have yet to actually close below 10000; proving, once again, that big numbers have a talismanic significance, way above their actual meaning.

So the Queen’s speech is now out of the way and we can breathe a sigh of relief that fresh air still seems to be free to all.

In a sign of the changing times, a Tory government seems to have fallen on the side of the divine right of the state to take your money. There never seems to be an argument along the lines of ‘proof of purpose’. The state is entitled to tax you merely for being the state and that is the end of it. Other nations are tackling their deficits from the point of actively cutting expenditure, but the UK has, true to form, started from the point of just taxing people more. As if the government was better or more efficient at spending the mullah. At some point, a significant slice will have to be taken out of the £600 billion plus budget of the state, the much touted £6bln cuts is less than 1pc of the total bill… frankly this is pathetic and the markets know it. We must remember that while private employment fell dramatically over the past few years, Public Sector employee numbers actually increased strongly AND their wage rises were significantly greater than those outside of the bulging public purse.

Worryingly, in both the US and the UK, job vacancies seem to have been sliding recently, while job hunters have been rising (quite sharply). This is not a good sign, especially as Spring/Early Summer is normally a good time for employment prospects. Almost unnoticed, Mr Summers in the White House has tentatively proposed more stimulus might be required, which may come as a nasty surprise.

Today sees the FTSE opening some 60 points higher, following the big US rally last night and neatly wiping out most of yesterday’s falls. This said, we are still only calling the market at 5005, which can hardly be considered ‘strong’. As mentioned previously, investors (the long term ones, who everyone likes to talk about) are not likely to be plunging into a market that is so unpredictable. The Bigger boys do not try to ‘bottom pick’; they like to see evidence of a return to bull conditions before planting a flag in the sand. If this means that they miss out on the start of a reversal, then so be it.

The 4950/5000 support was smashed about yesterday, but now we are back above it again, and so traders may be looking for some value once more. This is, though, a dangerous game. It might be better to sit on the sidelines and await developments, as there may be more bad news to come and, in our global market place, contagion is currently very high.

The bulls though, do have good arguments in their favour from the fundamental viewpoints on return and value; unfortunately, these are being swept away on the tide of uncertainty and fear.

There has been quite a bit written recently about the rising Libor levels, with 3mth dollar rates now at 0.54pc, having been at just 0.25pc a month or so ago. While this is worrying, the forward rate for September is even more concerning, with futures indicating 1pc, even though nobody is expecting any rate hikes. It must be remembered that Libor fixes are generally made by the most liquid operators as well and that there are strong rumours that European Banks are having to pay well over these numbers to attract funding. While the problems at the moment are Sovereign debt focussed, the fact remains that many Euro Banks have to hold these bonds for a variety of reasons (regulatory reasons in the main), but this will not save them if these huge holdings are diluted.

Currency markets managed to hold support levels versus the dollar, but it was not for lack of trying. The Euro spent all morning and most of the afternoon around the 122 level, but the 121.80 level eventually held, and the resulting bounce has taken us back up to 123 (or thereabouts). While this is reasonably encouraging, the fact remains that the Euro is still the weakest of the litter (in a pretty sickly bunch overall, it is true). There is room to the upside though, especially if some momentum can be got going, but currently 125/126.50 looks to be the limit of any reversal at the moment. Weak shorts were driven out in last week’s bounce and the return to the downside looked ominously easy.

Sterling has (rather surprisingly) sat on the sidelines versus the Dollar over the last week or so with 1.4250-1.4450 pretty much encapsulating the range. We are now at 1.4350, which just about sums it up. Traders will probably continue to trade this range until a break is confirmed and then possibly go with the direction.

Gold has managed (finally) to look on the bright side of all the problems and has popped back above 1200 once more. Yesterday was an exercise in slowly grinding higher (as was Monday) on the up side 1207/1211 is resistance and above here the target becomes 1218/22. On the downside 1092/96 is support, with 1084 more solid. Buyers have the reins though, so we will need something to change for the bears to win out in today’s session.

Oil has bounced from 67.50/68.00, where we spent virtually the entire European trading session until the States took us higher. Today sees inventory numbers at 15.30, which are expected to be strong. As with an enormous number of markets yesterday (by the final close in US time) the ‘candlestick’ charts showed a bullish hammer formation, with a positive ‘top’ and a long handle spiking lower. Bulls will be hoping that this is a signal for a more concerted bounce higher, while the bears will be muttering about ‘dead cats’. Oil is one of those most curious of products that is very expensive to store and so small surpluses can lead to dramatic falls, whilst tiny shortfall create the opposite. In this current environment, the Inventory numbers may well be even more closely watched than normal and clients should be wary of running ‘risky’ positions through them.