A difficult day yesterday as news managed to coincide with sentiment driving markets to new nine-month closing lows.
A very worrying factor in the price action was the general drift lower throughout the session, as more and more investors seemed to give up the ghost. While there were odd pieces of bad data, these did not have any immediate dramatic effects on the FTSE and the failure of the US to make up ground on their open in mid-afternoon seemed to be the catalyst for the second phase of the sell-off.
For all of the talk of double-dip recession in the press today, the fact is that the numbers do not support this (yet). Unfortunately the numbers do indicate (as they always have) a jobless recovery, bumbling along the bottom with minimal growth and generally consisting of productivity gains rather than actual employment creation (the same could be said over in the US). Not only this but, with employees working for longer before retirement, the options for poorly skilled/educated youngsters for the foreseeable future is grim indeed. Politicians can invent stimulus packages from now until the cows come home, but the most telling piece of information recently was that, even after the Pound had slumped over the last few years, the UK still fell considerably in the league tables of manufacturing cost comparators.
This morning is seeing the FTSE called to come in unchanged on yesterday’s close, which is actually quite good, as at one point last night we were looking at another 40 points lower. While the FTSE is plumbing the lows for the year to date, the Dow, Dax and S&P are not (BP has something to say for this), with the US indices actually holding at the low supports. More bad news might give a different story but, for the moment, the bulls are looking to pick up cheaper stock. The S&P has made a habit of returning to the 1035/1040 level and traders may be actually looking for longs today, so long as the index remains above this mark. As mentioned, without the BP debacle, the FTSE would actually be a couple of hundred points higher and we would be above the Oct 09 and Feb 10 sell-off lows, so things may not be as dramatically awful as they appear.
But the Non-Farm Payroll number (which caused a pretty solid drop last month) is out on Friday. Another poor number here may give the bears all they need for further mayhem.
On the currency-front, we continue to drift around the same levels as the last week, with the Euro sitting peacefully in the mid-to-low 1.22’s and the Pound consolidating its attainment of the 1.50 mark once more. Over the last month, the Yen has managed to make something of a move hitting nine-year highs versus the Euro and pushing back towards the 88.00 mark versus the dollar, which has proved such a good support over the last year. Our clients are now reversing out of Yen into the Dollar, looking for a repeat of recent history and a return to the low 90’s.
The Euro/Dollar has reaffirmed the support in the mid-1.21s, but it must be admitted that the rebound to the current price of 1.2230 is not exactly exuberant. Today sees a vast ECB debt repayment of some €450bln from all the European banks and we may see a tightening of short-term Libor rates through the rest of the week. Rumour has it that the Spanish banks have been asking for extensions on the monies (which they will probably get), as other Financial institutions baulk at lending them any more funds. Problems for the Southern European banks are unlikely to just disappear and traders continue to short the likes of Bank Santander.
Gold tried for a move lower in the midst of all the chaos yesterday, but the never ending stream of buyers kept its head above water by the close. The price action for Gold was slightly strange, in that we have become used to the market reacting positively to dire situations elsewhere (and a 3pc drop in the S&P must surely be considered grim). This and the action in Oil do at least give some hope for the bulls that the current weakness is merely a necessary blow out of weak players before markets can move higher again (there is always an argument for a bull-move even in the most convincing of bear markets).
Oil has managed to hold above the really big support of $75.00/75.50 and it must be said “with some ease”. We had a series of attacks all throughout yesterday’s afternoon and evening sessions on 75.20 (the low of both Wednesday and Thursday last week), all to no effect. We know that producers want to hold prices above 75 bucks and traders are unwilling at the moment to challenge this. A double-dip recession though would blow the desires of OPEC, etc out of the water and so the inability of the market to break down might be taken as a signal that demand from users is stable.