So Greece is ‘saved’ and the rest of the EU is umm.. err.. uummm.. left with the bill?
Going down to the wire appears to be the way of things these days and, as Greece was due to repay some €6bln of debt in the next couple of days, this once again is a symbol of politicians and central bankers ability to prevaricate until the last possible minute. The Euro had the briefest of rallies on the news on Sunday night but it has been downhill since then and, in truth, it is difficult to see how any other direction is possible in the medium term. The currency is overvalued anyway and European growth and debt levels seem to hardly favour a strong rally. Not only this but Greece now has to actually implement the cuts not just this year but for the next three to five years, cutting salaries and jobs in the public sector while moving average retirement ages from 53 (apparently, although this seems incredible) up to 67 and at the same time removing the vast retirement entitlements available to all (private and public). It would be hard to imagine a more incendiary cocktail than this and we must fear a more radical (communist or hard right) administration gaining power, one who might force default rather than live up to the harsh fiscal requirements.
Poor old BP’s struggle to both clear up both the Oil mess and their reputation is likely to cost Billions. Law courts in the US have a history of treating foreign companies far more harshly than domestic ones and we cannot imagine that this will change this time. The numbers being bandied about in clean up costs meaningless as the company is likely to find itself in decades of litigation in a hostile environment. Underlying this is the unfortunate fact that, unless the US wishes to be completely at the mercy of OPEC and the more incendiary members of the BRICs, they must continue to Explore and Extract from domestic waters. What must make this all the more galling for the company is the fact that it was not even their mistake that caused the problem.
The FTSE has recovered somewhat from the falls of late on Friday evening after the US markets dragged us higher on our Bank Holiday. The Dow managed to rally 150 points and is now just a hundred point from the recent high while the FTSE is over 250 from the same near term mark. News from the US has been consistently better than that in the Eurozone and this is likely to continue as Europe and the UK battle with a massively over extended Public sector (the US just does not have the long term commitments of Europe). Governments across the globe are looking to extract windfall taxes out of whichever sector is doing well at that moment in time and one must fear that this is going to become an ongoing factor which ‘big corporate’ investors are going to have to take into account.
At 5545 the FTSE is continuing to underperform (a few months ago the FTSE was within 300 points of the Dax, the gap is now over 600) as investors continue to fear the policies of the incoming administration. The politics of envy seem to be holding ever more sway and it would now be a brave politician who went against the ‘squeeze the rich’ philosophy that has built up over the last couple of years. Unfortunately this policy is, in the end, self defeating as businesses either stop investing in the UK or (even worse) actively look to move out. The loss of head offices to foreign climes has been a trickle to date but we must fear this turning into a torrent. As 70pc plus of FTSE 350 revenue is sourced from abroad the impact of moving to a more tax favourable centre is clear.
As mentioned currency markets are looking Euro unfriendly at the moment with, seemingly, the only thing holding it up being the desire for Governments to hold at least a portion of their funds in something other than Dollars. Support in the Euro is at 1.3150 and 1.3100 but as mentioned many times over the last few months the bears target remains the low 1.20s. 1.3100 is also the very long term bull trend line support (from 2002) we must imagine that it will put up at least a bit of a battle (we nearly touched it a week ago and the cross immediately bounced two cents). But if this support breaks we may well see some serious offloading of longs.
Sterling remains stuck in the same trading range that has dominated the last few months (1.48-1.55) but it must be admitted that it is beginning to look a tad weak in line with the Euro but this might just be attributable to the current Dollar strength rather than anything intrinsic. On a long term basis the Cable (GBP/USD) trading range has been narrowing since late 2008 (although it might not feel like it sometimes) and we are seeing a powerful flag formation with current support at 1.4940 and resistance all the way up at 1.5750.
Gold reached a high of 1188 yesterday as the Yellow metal benefitted from the woes of the Euro and Euroland. Today sees some pull back as the Dollar strengthens and so the price of Gold (in dollars) falls. In Euro terms Gold is at an all time high. Support in Gold is at 1176, 1170/72 and 1160/62 and resistance at 1183 and 1188.
Brent Oil is now at a new post 2008 high and bulls are almost certainly targeting the 100 dollar level. On the other hand Nymex failed at $87 (again) and longs here will be slightly concerned that the reaction this time is not as extreme as the last attempt back in early April when we slumped back to $81.50.