Alistair Darling will present his considered opinion and solutions at 12.30 this afternoon. Is it jjust me or is there something rather weird about our real expectations that provincial solicitor from Edinburgh whose boss is errrr…. well (apart from being politician since the year dot) trained to do nothing very much in the financial arena …. will actually produce a solution to a problem that they massively helped to create in the first place.
While the financial sector is the popular villain the real problem is the structural deficit. A problem that some of us have been warning about for years and years. The huge revenue earned by the private sector and the City over the last 12 years (driven in the main by easy money it is true) has hidden the profligacy for quite some time but the huge spending plans of ‘New Labour’ always had the fatal flaw that they did not seem to even vaguely consider the possibility of a recession and the impact that a downturn might have on tax revenue numbers.
Mr Darling will no doubt try to pander to his public with a raid on banks and the wealthy but the money that matters to the real well being of the nation will not be impressed if there is a perceived unjustified attack. The UK desperately needs a return to the huge fiscal inflows generated by its financial sector, if Mr Darling threatens this, merely to be re-elected, the sound of the exit door banging to more favourable locations may well get louder and louder.
This morning sees markets weakening towards yesterdays lows bang on the bottom of the recent trading ranges but the supports have not yet been broken in either the Dax the FTSE or the US markets (although it is a close thing just at the moment). The Dax has price support at around 5625 and trend support at 5630 so the opening call at 5650 as I write is flirting with it.
The FTSE has very strong price support between 5170 and 5200 but trend support is considerably lower, underneath 5000. The weakness in the pound is proving something of a bolster to the senior index but the FTSE 250 is looking a tad more nervous with long term trend lines rising to 8900 today combining with price support at around the same level. The close yesterday at 9030 is well away from here but early weakness in the pre market action might make for an attack on this when we open at 08.00.
Currency markets are turning pound unfriendly again and will probably remain that way until we get the Budget update this afternoon. Cable is now at 1.6190 the low for a couple of months and to be honest it is anybodies guess as to what will happen from here. The worst case scenario is that Mr Darling’s comments are taken badly and the market loses confidence in the ability (or willingness) of our lords and masters to get to grips with the deficits. If real action is put off again until after the election patience may wear thin and the Pound and Gilt market might take a real bath. On the plus side, though, we do know all of this already and markets have remained unfazed up to now. If you want to be short pounds one assumes that you already are… some of the support for sterling over the last months might be viewed in this vein.
As feared in yesterday’s comment the strength in the Dollar does seem to be taking the shine off of Gold. We are now at 1130 (the support level mentioned on Monday) having pipped down to 1125 a couple of times late last night and this morning. The Euro has found support versus the dollar at the 1.4680 price level and the yellow metal is still trading as a currency substitute. If the Dollar gives up some of its gains then Gold might well regain the upper hand but if the recent economic news continues to underpin the Greenback then we might well be in for a rough ride for the Gold Bugs. Support remains at 1130 (where we are now) and obvious 1125 seems to be good as well. Resistance on the up side will be focused on 1145-1150 and then 1165. The real long term bulls will be comforted that virtually every long term indicator is still heavily in favour of further gains, we do not even challenge the first medium term trend support until we have fallen another 100 bucks and moving averages have not even started to turn negative. This said we must beware dollar strength and an end to the loose fiscal policies of the Western economies.
Oil seems to be putting on a braver face this morning after confirming our fears in yesterday’s comment of the possibility of further weakness. Nymex seem to have found a support level at 72.40 which battered bulls will be hoping to act like the 75.50 support through November. We are currently at 73.25 for the January contract and with virtually every major market sitting just above support most eyes will probably be on their ability to stand against a general bear move just before Christmas.