Late Comment today – apologies.
Not sure what to say today, as the last few sessions have been so contrary to the opening of the next trading day.
Yesterday evening we were all in the pits, worrying about the end of the world (again) and this morning suddenly all is sunshine and happiness, with all the indices markets trading way higher, the Euro bouncing from the sub 122 level and Oil spiking up to near 73 bucks. Far be it for me to be Dr Doom, but…this continued style of schizophrenic sentiment moving from boom to gloom and back again on a moments notice is very destabilising in the medium/longer term.
The news this morning seems to have focused on the problems for the government in dealing with longer term entrenched unemployment and dependence on incapacity benefits. The hotspots are generally (but, obviously, not exclusively) to be found in Wales and the North East/West where, unfortunately, the greatest percentage of Public Sector jobs are also located. Without this State largesse on the job front, the situation in these areas would be even more disastrous. Political parties of whatever hue find it impossible to ‘sell’ any cut back in Health, Education and Law and Order, all of which are (in general) spread quite evenly across the country. This means that the bulk of the cuts are likely, in the first instance, to fall on the big administrative areas (i.e. Wales and the North East). As any reader of the above will realise, trying to match the weaning off of long-term benefit dependents, with big budget cuts in the very regions in which they will be looking for employment is well nigh impossible.
Fortunately for the Tories (if you can be so cold about these matters), the people hardest hit are almost certainly not going to vote for them anyway (either now or in the future). Politicians (notwithstanding the low opinion in which they are generally held) do, in the main, get into the job wishing to ‘do good’ both fiscally and socially by the population in general. The situation we find ourselves in means that, in the coming years, for nearly everyone this will almost certainly not be the case.
Anyway, today we can see the markets surging on the rally in the Far East and the statement from China that they are not looking to offload their Euro assets. Although this is hardly surprising, as they must be sitting on monumental losses by now! Governments can generally play the very, very long game and they know that no matter how low the Euro goes it will, eventually, come back into favour (err…probably). The currency markets (for the majors) have generally proved to be remarkably predictable in the long, long term, generally oscillating (albeit in huge swathes) around a pretty definable mean point.
The FTSE is trading some 50 points higher, having traded as low as 100 points off in the US session yesterday evening. We have rejected the 4950/5000 level once again and clients have been rewarded (once again) in their confidence in buying the support. Not only this, but the rejection of the low levels have been quite violent on each occasion, going all the way back to October last year. As mentioned in a few recent comments, it is quite difficult to be negative for equities on fundamental grounds as announcements/yields/growth/valuations etc all rather favour them. Unfortunately these analyses are all being subsumed by the occasional brutal bout of nervousness.
Yesterday we commented on the fact that the Dow had yet to actually close below 10000, even though it had traded considerably lower during various sessions. The close yesterday corrected this anomaly, with a close at 9940 only for the Far East and Europeans to go bananas. We are now at 10100 and the North Americans are still four hours from walking into their offices. As mentioned in a very recent previous comment, US traders really hate their markets being moved around outside of their trading hours.
Currency markets have seen a big spike for the Europeans (including the Pound) early in the session after the aforementioned Chinese announcement, but since the highs early on, we have seen a bit of a return to the downside direction for the Euro. The Euro/Dollar ran into the heavy support at 1.2150/80 last night, a level which has held it up several times already and from which (like the support in the FTSE) we have rejected quite violently on each occasion. The cross is now at 1.2260, having hit a high of 1.2340 this morning, but is looking comfortable. Resistance is building at the 1.2340/60 level against any recovery, so traders will be watching this for any sign of a bullish breach if we manage to approach it again.
The pound is doing better up at 1.4500 at the moment, with resistance at 1.4535/40 and support at 1.4450, then a series of quite good supports all the way from 1.4400 down to 1.4230. Although Sterling is in a bear market versus the dollar and yen it is managing to hold its ground at the moment and is doing better against the Euro. Clients should beware getting too negative on the poor old Pound as the effort in driving it lower seems to be getting harder and harder.
Gold is remaining at the top end of the recent range, although has already failed earlier today at the resistance at 1218/22 mentioned yesterday. The precious metal market does seem to be holding steady at these levels, though and pull-backs seem to be getting harder. Through much of yesterday we vainly pressured $1209/10 (where we are now), and bears will be hoping for a break of this level. Even if a break is achieved, there is another support quite close at $1204/05 and then at 1200 itself.
Oil continues to probe higher at $73, some six dollars above the lows of Tuesday. The move lower now looks to be a blowout event, with bears being squeezed in the subsequent rally. Underlying the movements though is the undeniable fact that (just for the moment) there is a surplus of the black stuff about. Traders would be advised to be cautious about expecting a return to the 80’s just yet.