Markets are bouncing very nicely from the lows of yesterday evening, and the reluctance for investors to sell below 5000 in the FTSE, 9800 in the Dow and/or 1050 in the S&P has come to the rescue yet again.
Corporate numbers releases still indicate reasonable returns from the ‘big beasts’ in the corporate world, but how much of this is due to earnings growth outside of the OECD nations is not clear. From the NFP data on Friday, it might seem that smaller domestic US indicators are not so strong and the same message is possibly being seen in the UK and Europe. From a purely financial point of view, the globalisation of most major players might indicate that no matter how well or badly the UK domestic economy performs, the actual constituent parts of much of the FTSE 350 will probably do reasonably. This said the various indices charts do not make for encouraging reading, as every attempted rally get well and truly stomped on (albeit with the lows repeatedly holding firm).
As mentioned, the FTSE is still holding steady on the 4950/5000 support and the buyers have been out in force this morning from about 06.00. taking us from an indicated 30-point fall at 5035 to virtually unchanged on the open (having hit 5005 late in the US session). With ‘Aristo Cameron’ coming out with the circus act worst case scenario and then admiring the Canadian solution the markets have a nice little tug of war going. On the one hand an indication that some serious decisions actually will be taken thus driving prices higher, but on the other, fearing that such draconian measures will seriously impact both growth and corporate profitability. Of course most commentators will just believe the opposite, where a sledgehammer threat of 20pc cuts (what Canada did) is followed by ‘just’ 10pc and everyone feels relieved; a classic PR ruse!
Considering the news out of BP has been slightly more positive in the last few days, it is quite surprising to see the stock still down near its lows at around 425p. To be failing to make any form of bounce from the precipitous falls is now quite worrying, as this indicates that the big investment funds are still not convinced and seem to fear something above what is already known. While this years divvy may go west, ‘literally’, once the leak has been plugged one would have thought that the longer term view was reasonable. But, of course, there is the nagging worry … what if the pipe just keeps on pumping out for months? How do you quantify the cost in such a litigious country as the USA? What if Obama’s administration does punish them over and above what is reasonable?
The Dow has held the low support at 9800 overnight and the S&P likewise at 1050, but we must fear the continued drip, drip of selling waves building into something more dramatic. Every time investors believe/hope that the worst might be over, another slug of news hits the wires and it must be remembered that (aside from a few sovereign downgrades) all we have had so far is ‘possibilities’ not ‘actualities’. Greece has not defaulted, Spain, Ireland, Italy and the UK are enacting budget cuts, neither inflation nor deflation is gaining the upper hand etc, etc. The market is in the classic cycle of ‘fear and greed’. At the moment we are stuck firmly in the ‘fear’ bit of the sequence.
Currency markets have also stabilised at the lower/higher end of their ranges, with the Euro sitting comfortably, for once, above 1.1900. Even the fall out last night of the Equity markets failed to force it to new lows on the day and Sterling has definitely found more support in recent weeks as the contagion in Euroland has failed, so far, to cross the channel. It is difficult to get too bearish now on some of the Euro, simply because it has fallen so far already and the doomsday scenario of kicking out some of the weaker members of the EC would seem (to me) to be actually a positive. It is the propping up of the wayward nations which is causing so much grief. There is very good support at 1.1840/60 and under here the bears long-term target of 1.1640/60 on the upside there are a series of minor resistance levels but the nearest reasonable one is at 1.2170 then 1.2280 and 1.2350-1.2450 being the original target for the shorters.
Sterling versus the Euro has now moved back up above 1.2100 for the first time since Dec 08, but there is strong resistance at 1.2140/50 from that time. The target for Goldman’s (to be fair quite some time ago when the cross was around 1.10) was for a return to the 1.2500/1.2800 range that dominated for much of 2008 and it would be a brave man to say they were wrong.
Gold was the big gainer yesterday, first failing to breach the 1210/12 support mentioned yesterday and then bouncing violently, breaking the 2018/20 resistance and climbing strongly almost all the way up to the all time highs of around 1248/50 just losing way at 1245 (where we are at the moment). A break of 1248/50 might well be the signal for the next shift in the seemingly inexorable moves higher, but we must first get there. The rally in Gold in what was otherwise a quite low-key day is rather unnerving, as we have become used to the Yellow metal being the harbinger of doom in some sector or other.