Interesting start to the day with the EBC effectively saying that there will be no ‘bail out’ of Greece. This rather puts the cat amongst the pigeons as, without help, Greece is rather up the Swanee.
The Euro has taken an immediate plunge taking the cross down to below 1.43 (briefly) but the cross has been here a few times in the last two weeks or so and there has been reasonable buying support in evidence from 1.4200 to 1.4260 and this news can hardly be said to be startling. There is also a sense of ‘hardness’ about the announcement from the Bank (which will almost certainly NOT be backed up by the politicians) which might indicate a willingness to eject a recalcitrant member state ‘pour encourager les autres’ and which will comfort the markets for the time being.
Of course the EU state is beloved of the political elite as they can all assure themselves of a cushy little number once they get booted out of office in their domestic administrations. So it would really be stretching it a bit to suggest that they would countenance such an option. This scenario has always been the Achilles heel of the EU project. When things are going well as they did do ffrom 2000 to 2008, then no end of problems can be swept under the carpet but, when the ess aitch one tee hits the fan, the Commissioners are sadly lacking in any real instruments to enforce fiscal compliance on member states. Ireland, Spain and Portugal are in a similar (although not quite so bad) situation as Greece and dealers can be forgiven for starting to believe that, with no ability to throw out the bad apples they might start to affect the entire crate. If these nations issue huge sovereign Euro debt (effectively cadging a lift on the Euro strength afforded by other member states) then the overall quality of the currency may be drawn into question.
A lot of mights and maybes but it is often this type of speculation that can drive currencies.
Cadbury is back in the lime light again after the shenanigans of the last few days. First the speculators thought Nestle had sold a unit to create a cash pile for a bid (on Monday) pushing the stock back above 800p for the first time in a while and then Kraft (lo and behold) sold Nestle a Pizza unit thus securing their non-involvement followed in quick succession by the sage of Omaha expressing his dissatisfaction over the possibility of Kraft over-paying. The net effect has been for the stock to slump back down to 775. If anything you have to admire Kraft’s internal security as there has been precious little leaking of any sort from the 4th Sept to date. As mentioned yesterday (before all this happened) there is always the chance that Kraft might just drop out altogether. They still have no competitor, 3 months after the initial bid, and probably see no merit in trumping their own offer. Cadbury’s board was just as strident as ever yesterday but, if Kraft have no stomach for an aggressive battle, the lack of board approval could result in a swift return to 600p which would certainly upset investors.
The FTSE remains above 5500 this morning but we are still struggling to get any follow through from the rally to the new highs on the first session of the year. Not only this but the Dow, Dax and S&P having joined in initially are now sitting rather uncomfortably just above support. While the best bet at the moment is possibly to the upside, as we are still above the old resistance levels, a close weather eye should be kept on the possibility of a disappointing fall back into the ranges.
Gold has had a couple of goes at the support over the last day or so but all have been defeated if not with ease. The reaction buying is continually taking us up to the 1125 to 1128 region. Dealers will be looking for a break of this to possibly take us to the 1141 resistance mentioned yesterday. Support is as mentioned at 1115-1117 and unless something happens to the Dollar this looks to be safe for the morning session at least.
Oil has been battering at the $82 level but has so far failed to penetrate. Any attempts to push us back down are equally unsuccessful and traders will be watching the 81.25 to 82.00 for a possible trigger for the next short term direction. At the moment it continues to be dangerous to be short and one must speculate that the recent appalling weather across the Northern Hemisphere might be depleting reserves more than forecast (of course many will have already done so justifying the recent rises). The Inventory number is out this afternoon from the states and we can yet again expect some fireworks. They might be weaker but still disappoint. Again, as with last week’s comment, it is a dangerous data release to hold a position over so only those with big pockets should apply!