A quiet morning, with the indices looking firm on pre-opening activity and the currency markets once again taking the strain as the dollar begins the week giving up some of the recent gains.
With no particular news out over the weekend, most asset classes are looking more valuable once again, as traders continue to take comfort from the lack of anything horrible coming out of the woodwork. The huge sums of money being printed by the Western economies remain supportive of the markets, as politicians and central bankers continue to put off the foul tasting medicine. At some point this flow of largesse will have to be reversed, but everyone still seems to be of the hope that growth will solve much of the problem.
Desire Petroleum’s out of market hours announcement of a failed well exploration in the Falklands has caused heavy losses across many clients’ accounts, as the belief in the story of black riches in the South Atlantic had tempted many into buying into the stock. There is not much happiness out there on this story, as the stock has more than halved overnight from almost 100p to just 37 as I write. If this is symptomatic of the entire basin, then the Argentineans will probably be rather pleased that the Brits have wasted their money on exploration rather than the other way round.
The FTSE is opening at 5730 up some 25 points on Friday’s close and traders will be looking to see if the 5730/40 resistance can hold us back in early action. Our clients are shorting cautiously at these prices, but it must be said that ‘cautiously’ is the word. Normally at price extensions we see heavy contra trading, but this time there seems to be much less certainty of a reversal (probably means that this time we will see a collapse!).
The US markets are also chomping at the bit with traders looking to the 11000 price in the Dow and 1200 in the S&P. Both these markets do have significant resistances just above current levels at 1178/80 in the S&P, and 10910 and 10950/70 in the Dow. In the short term these may hold us back but anything even remotely like good news may well scoot us through these levels. On the negative side, US treasuries look to be under pressure with 10 year yields now well above 3pc. The entire bond market scenario is looking gloomier by the week and it will be a moot point if the equity values can continue to appreciate while debt values depreciate.
As mentioned, the dollar is having a bad morning of it with both the Euro and Pound putting on the weight in what appears more of a relief rally rather than anything fundamental. The Yen is sitting on the side lines, as it has done for a while now and traders might be worrying that the currency may be exposed to further falls. Since the start of the year, its entire trading range versus the dollar can be covered by a very small handkerchief (88 to 93).
It appears that the sub 1.4950 support in Sterling has held once again and having spent several days popping at 1.4800 traders have started to reverse (or be chased out of!) shorts, but we must be wary as rallies in the past half year have tended to be short, sharp and eventually futile.
The Euro is following sterling higher, as well but in this case the enthusiasm seems somewhat muted and we are seeing shorts building up just below 1.3500.
In Gold the market is following other asset markets higher and we appear to have reconfirmed the 1085/1092 support area once more. Dealers will be eying 1126-1131 resistance area, as the target for the up side but we are just under minor resistance at 1112/14, which has proved problematic in the past.
Oil is just as contrary as everything else with the recent strength and subsequent weakness failing to dent either the resistance at 82/83 or support at 78/78.50. We continue to worry at inventory levels, as these appear more than sufficient for the near term.