Markets are continuing their gradual drift lower this morning, as the economic news once again fails to lift spirits.

The high expectations of just a month or so ago seem to be in the process of slow erosion and the FTSE is now back close to the support levels of 4950/5000. The opening price this morning is around 5010, but bulls will be hoping that the buyers can be attracted in at these prices as they have in the past. While intra-session lows have been down as far as 4900, the market has not closed aggressively below 5000 since Sep last year and (as mentioned a few times in the last six months or so) investors will be hoping for a repeat effort this time as well. The bears will obviously be watching for the exact opposite and traders are advised to beware of a move under 4975/5000, especially if we are down at this level towards the close this afternoon at 16.30.

The Dax managed to rally yesterday in a curious rejection of the US and UK market direction, pushing the FTSE/Dax spread beyond 1000 points (on the 1st March this was just 300), where it remains this morning at 1050. Much of this can be laid at the door of BP, but even removing this we can see a definite FTSE-negative trend becoming entrenched. This is doubly surprising, given the heavy weighting of Mining stocks within the indices and the high prices currently being enjoyed by raw materials. There appears to be fundamental revaluing of some stock sectors, as governments across the globe look to grasp ever more of the revenue extracted.

On the plus side (as we are all well aware), the US markets hate large moves outside of their time zone and they have a habit of reversing such events. The S&P is now 9 points under yesterdays New York close and the Dow likewise 80 points to the bad. Day-traders will be watching for signs of such an event occurring, as US traders begin arriving from 13.00 this afternoon.

Currency markets are actually being quite peaceful, with the Euro quietly retracing the 1.2200-1.2400 once again. Last week we found little traction below 1.2250, so we can expect short-term traders to be looking at buying this morning at the current levels of 1.2230. Dealers should beware, though, that the Euro is looking quite fragile versus all majors at the moment and at 108.60 versus the Yen is trading very close to an eight year low of 108.10. Even the pound is gaining ground and is now well above 1.20 at 1.2320, rather denting all that talk of ‘parity’ over the last year or so. Although the problems of the Southern States sovereign debt has drifted from the front pages, this does not mean that they have gone away. The summer is often a time of peace and reconciliation on the FX exchanges as volumes dry up, but as we exit the period we may well see more fireworks let go.

Cable has crept back above 1.50, as the US data has started to weaken over the last month. The budget has given some hope to longer-term investors that financial mismanagement will not be left to drift as it has over the last four or five years, but it must be admitted that making tough speeches is one thing, standing firm when cuts actually impact the weakest in society will be quite another.

Gold was the biggest surprise yesterday, after a spike higher on the US session open, almost (but not quite) up to the all time highs, appeared to trigger a huge market sell order. The consequence was a drop of over 20 dollars in just over an hour in two separate waves of selling; an event from which we are still struggling to recover. The price is currently at 1234.5 and is possibly in danger of slipping below the mid-term bull trend line, at around 1234.

Oil has rejected 79/80 dollars (again) and is now threatening a stronger move lower. As mentioned previously, the headline price is slightly miss-informational as each forward month is a $1/$1.50 higher than the previous contract. The last two expiries alone have totalled over $4 of premium leaving the ‘real’ price actually below $70 on YE09 valuations. This is a hidden cost to end users and explains (to a certain extent) why oil prices on the forecourt continue to rise. There is support at 76.50 and into the $75 area (where OPEC wish to hold levels) below here, though dealers may be fearful of a quick return to the 68/69 levels, which have proved resilient over the past nine months.