As speculated yesterday the first trading day of the year was its usual roaring success for the markets and investors must now hope that this is not just a repeat of 2007/08 and 09 where good starts were quickly reversed.
The FTSE is now at 5500, a nice round number for everyone to get excited about and the Dax is at 6050 (also close to a big psychological figure). Clients have been selling strongly all morning and, if this pattern is being repeated across much of the market landscape, this might well build up into a ‘short squeeze’ possibility. Markets are very much like elections where it is the small number of ‘floating voters’ in the few marginal constituencies who decide parliament. I live in leafy commuter-ville which has always been Tory and will probably always be Tory no matter which way I personally vote. For Markets the same pattern can be seen. The vast majority of shares are held by long, long, long term funds (pensions and insurance and the like) and are generally shifted around by the 10 to 15pc of ‘floating investors’.
If the big players get the idea that the easy move is to the upside (because all the small players are short and therefore ‘game’ for a squeeze) then we may well be in for a nasty spike higher.
Cadbury remains the focus of heavy speculation as Nestle apparently geared itself into a possible bid situation only for the company to deny any interest. The stock is off 15p this morning back at the 785-790 level which has dominated price action since the initial announcement by Kraft. While investors continue to expect a better offer from someone (and maybe Kraft will increase their tender) it must be cautioned that, in the post crunch era, banks are not likely to look too kindly on borrowing to purchase at too high multiples. Depending on their long term outlook Kraft may well just drop their bid and await a more opportune moment later in 2010/11.
Banks are on the up again after a swathe of Buy notices from the brokers. It is difficult to argue the they are wrong as ‘the survivors’ of the crisis will find themselves in a much better business environment than pre 2007. With fewer competitors around and the likelihood that depositors in the UK (after the Icelandic debacle) will stick to the domestic units for a while the outlook must remain more favourable. This does beg the long term question as to growth potential in the UK as QE and Tax hikes begin to bite. The omens look good at the moment but it has to be said that the jury is still out.
FX markets continue to be Sterling unfriendly after an initial rally early on yesterday ran into big sellers. The 1.5800 to 1.6750 range remains the big support/resistance versus the dollar and 1.1080 versus the Euro is also quite important.
Oil has rallied to the top of last years trading range (almost exactly) hitting 82 bucks in early action. After putting on 8 straight winning sessions we have now put in 9! Without any news in the offing until the inventories tomorrow it is difficult to speculate on new highs so we might have a bit of a pull back before then but the momentum is definitely in the bulls favour just now.
Gold has broken back above the long term trend support that we broke below on the 21st Dec. This is now at around 1116 and the one attempt lower, yesterday evening, failed to press back below it. The Yellow metal has been a tad weak recently but dealers are still fans and continue to buy on any falls. We are in a bit of no-mans land at the moment with little to recommend itself, there is some small resistance at about $1141 and on, the downside, there seems to be little in the way of appetite to sell below $1085. Aside from this we can merely go with the flow which (just for the moment) is possibly veering to the buy side.