It’s all about the GDP numbers from the US today. The market suffered a nervous move lower yesterday having spent most of the session in the black but after a good move higher so far in July some people decided to either take some profit or cover themselves ahead of today’s data. The last few weeks have seen a return of investor confidence and economic data on the whole has surprised to the upside, along with corporate earnings being better than I can remember for a while. But for now the market is just having a respite, waiting for confirmation that things really are looking up, so until the GDP data today we can expect markets to drift sideways.
The figure expected is 2.5%, down from expectations of 3.0% a month ago with the main drag being the consumer. Businesses are starting once again to stack their shelves with stock, but consumers are still waning with the prospect of higher taxes and austerity down the line. This morning UK consumer confidence numbers were worse than expected, which complimented the US data on Tuesday so it’s understandable to see indices stalling at these levels after such a good run higher. With the consumer making up nearly three quarters of the US economy it’s significant and essential that the people get back to the shops to help maintain this revival in the economy.
If the GDP numbers weren’t enough for us to absorb today we also get Chicago PMI data and then Michigan confidence numbers, all expected to decline. We need a raft of good numbers to push through the resistance levels, so for now investors are sitting on the sidelines.
As a result the FTSE is struggling to gain traction this morning and we’re back below 5300. Targets for the bears are 5270, but below that level there’s little in the way of support until 5200. The bulls are definitely in the minority for now, especially since the few gainers on the day are defensive stocks with utilities covering the leader board and miners dragging us lower. This is natural to see if investors are expecting the world’s biggest economy to release data that will show growth dipping a little.
Despite the worse than expected UK consumer data this morning the pound is the star so far in the session with cable looking content above the 1.5600 level and against the euro it’s having a stab at the 1.2000 area. This is proving a bit of a stumbling block for sterling which has benefited from the euro weakness bringing it back from the brink of parity with the single currency. After the pound went over 1.2000 in June the move did look overstretched so a degree of realism has returned to the market, but a continued failure at 1.2000 will serve to give the upper hand back to the euro and we could easily return back to the 1.1880 level.
Gold continues to languish around 1170 having found support on its 200 day moving average, but the bulls are a little nervous that any further selling and a move below this support area, currently around 1155, could trigger a more severe correction to the downside. With so many people long the precious metal now the recent declines have made bulls sit up and take note so some unwinding might see another push lower. Technical analysts are also continuing to point out that the breach below the upward trend line is a very ominous sign.
Crude continues to mooch below the $80 mark and hasn’t quite enjoyed as much strength as the equity market. Continued failures below here will bring its long term uptrend into doubt, so bulls of the black stuff will be hoping to see a good GDP number from the US later. A break above the $80 level will pave the way for 80.80 and 81.90.