A very quiet weekend on the financial side, so traders are finding few reasons to smash the markets once more, this morning. Not only this, but the US is also off for its Independence Day celebrations, which is likely to make this afternoon’s session particularly boring.
Traders are slowly buying back into equities, having battered the lows to no great effect through Thursday and Friday. The Non-Farm Data was as grim as expected, and there is a small feeling of “sell the rumour buy the fact” going around at the moment. Interestingly, while the press and trading floors worry ad-nauseam about a ‘double dip’ recession even the most bearish of economists seem not to agree. Yes, we are probably not going to roar out of the traps, and recent data has shown that huge debts do have to be paid back in hard work for little return, but this is a long way from an actual slowdown.
For the UK, the big crutch for public confidence has always been ‘property’ and this is possibly our weak spot. Outside of the racier bits of Central London, the spike from the lows of 2009 seems to have run out of steam. Sellers are not willing to reduce prices, but buyers are unwilling to pay up (and banks even less willing to accept over-valuations). In conversation with a developer, he was moaning that the only sales that seemed to go through were forced actions – divorce, death, relocation or redundancy, where the sellers were willing (under duress) to come down. With the Public Sector likely to become a net-shedder of jobs over the next three or four years, the supply of new buyers onto the bottom rung is liable to be a tad thin on the ground. As house activity tends to feed down into the rest of the economy we can foresee, if not weak demand, then certainly subdued activity.
This morning sees the FTSE, almost unchanged at 4835, having attempted a move higher, already reaching 4860 in early action. As mentioned earlier, there is not much activity going on at the moment and this is unlikely to change today. It is always difficult on days such as this to try to speculate on the coming session, as sometimes the lack of liquidity creates big swings and on others trading floors just give up the ghost and we drift through the day. With the trend definitely bearish at the moment, the easier direction to cause a panic would be down but (on the other hand) there are probably a goodly number of weak shorts out there just begging for a short squeeze to push them out. With the sun shining brightly, the bars around the city will probably be the only winner in the end.
Currency markets are similarly moribund, with most crosses hardly moving so far. The Euro/USD has had a thrilling 40 pip range since opening at ten last night (FX traders East of here across the world must have had one of the most boring Sunday Night/Monday Morning sessions for months). The Euro has recovered above the 1.2350-1.2450 level and even reached 1.2610 on Friday, as shorts were mercilessly squeezed into submission. This morning it is drifting marginally, but seems unable to fall below 1.2520/25. We are seeing buying at this point, but traders are putting very close stops under this mark as well. If the cross pushes below 1.2520, we may see renewed weakness, but for the time being the bulls seem the more confident.
Sterling has likewise recovered versus the Greenback, and we have finally made it back to the pre-election levels (we closed at 1.5095 on the 5th May). While this is all very nice, it does have a feel of markets moving in a particular direction simply because they can’t think of anything else to do. 1.52 has been (pretty much) the median/mean point since the pound fell out of bed back in late 2008, even the mid-point of the low high since then (1.35/1.70) is only a few pips away at 1.5250. The disappointing activity has been fact that the pound has been drifting against the Euro in recent days, falling from a high of almost 1.24 down to the current price of 1.2100. The one major factor in the UK’s favour is that its problems are solvable by itself and the country can determine economic policy to suit itself. Spain, Italy, Ireland, Greece etc are stuck in a monetary straightjacket that is controlled by stronger economies (Germany, France, Holland etc); for them the future appears bleak indeed.
Oil continues to fall from the high 70’s and the ease with which it fell through 75, 74 and 73 bucks down to the current price of 72.30 bodes ill if further poor economic data comes down the line. There is support at 72.00 and 71.60, which may hold depending (really) on other markets, but one does begin to worry about the cost of continual long trades given the calendar month rollover costs.
Gold made a spirited attempt at $1200 on Friday, but the knowledge that the 1196 support had held so effectively on Thursday probably weighed on the minds of the bears. This morning there is very little to go on with the metal unchanged on the session. Support is (as mentioned) at 1196, but there are a wealth of failed attempts to break lower in the 1200/1215 range over the last month or so, which may give the bulls the strength to attempt to regain the initiative. A close back towards the high teens may be all they need.