Back from the brink could be the message from Friday as markets teetered on the edge of meltdown, only for a late US rally to put a hand out to pull us away from the abyss.
We have had the ‘banking’ crisis now we are entering the sovereign one. Reading the comment from various political forums from the UK across to the G7 meeting the emphasis remained the politicians favourite response ‘tax it’ to solve the problem. Why we continue to believe that politicians should be able to come to any sensible conclusions beats me. Their prime focus continues to be ‘get re-elected’ not make sensible or prudent (remember ‘Our Gordon’s favourite word) hard decisions. This twin burden has meant that many countries continue to just spend money in the ‘hope’ that something will turn up and only in absolute extremis will the ruling administrations actually do anything.
The G7 have met and just about the only solution they can come up with was the very easy political one of taxing the banks more. Sounds great until you realise that this (on top of the huge regulatory burdens being imposed and the heavier capital requirements added on) just means less lending, slower growth, in fact just about everything guaranteed to send the Western economies back into the mire. Banking might not be everyone’s favourite sector at the moment but the fact remains that the West’s pre-eminence was built on the back of it. Our politicians should start to gain some back bone before the easy banker bashing pronouncements go too far. Quite how taking more money from banks will make the financial system safer (!?) quite eludes this commentator.
Markets look to be opening slightly on the side of the angels this morning with the FTSE called at around 5085 having hit a low of 5015 in after hour’s action on Friday. There is solid support below 5000 at 4980/90 and 4940/50 from the twin sell-offs in October and from resistance in September. If we break these levels dealers will be eying the 4300 to 4500 range which dominated early summer. But this is probably a tad ‘dark’ for now and buyers seem happy to top up holdings at the new lower levels. Resistance to the up side is at 5100 (naturally) and up to 5125. Above here there is another resistance at 5140 and if this is broken we may see a return to the old 5180/5350 trading range.
The US markets are acting in much the same way (as might be expected) and in the S&P 1100 and 1150 seem (in hindsight) to be critical levels. We battered against 1150 from the 10th to the 20th Jan without success and since falling below 1100 we have had the same problem in achieving a closing foothold back above 1100 even though we have managed to trade intra day higher. This continued failure to make new highs is beginning to sap confidence.
Gold made a new low for the year pulling us back to the minor support level at 1045 before the same rally that helped the Indices came to its aid. We are now at $1068 but overnight activity has been very muted and we are very much stuck between 1065 and 1070 at the moment. All eyes seem to be on the Euro as the direction of the Eurozone currency appears to be dragging the Yellow metal around with it. Unfortunately for the Gold bugs the Euro is becoming something of a whipping boy as speculation abounds over what the Germans are going to agree to re the PIGS debt problem.
The G7 pronouncements on the Euro problems appear to indicate that some rescue is in order but the currency seems not to know whether this is good or bad news. The temptation to just bail out Southern Europe is strong but the Germans have indicated that, in the midst of the economic downturn, they (nor their voters) have any appetite for bailing out the profligate ‘Garlic Belt’. They feel (as do many others) that the law abiding, on the tax paying front, are being asked to put their hands in their pockets to fund the massive tax dodging and graft endemic in Spain, Italy and Greece. Unless these nations pass real laws (and enforce them) to actually collect the tax share of the vast black market revenues and also make the budget cuts required then we may find the purse strings will remain firmly closed.
Sterling on the other hand remains weak for all the right reasons. Poor economic situation, appalling budget position, weak administration all add up to a nasty stew. The resurgence of the Dollar has left the poor old pound rather exposed and we really need to regain the 1.5700 support other wise the 1.4400 to 1.5400 range looks enticing.
Oil had a heart stopping moment on Friday as a huge stop order was triggered at $72.50 taking the market down to $71 odd in just a couple of seconds and then all the way down to $69.50 in just a few minutes more. We are now at 71.50 and the market remains fragile and prone to sharp moves in either direction (it was only last week as well when the market bounced off 75.50 to rally up to $78.00!). Not a market for the nervous and one to play with extreme caution.