Equities are bouncing this morning, after a good rally in US stocks over night and despite further weakness in BP’s share price. The oil major continues to come under pressure from the US, as oil gushes and gushes out into the Gulf of Mexico. Down to 4 quid now, having lost nearly 40% of its value, the share price is back to levels not seen for over a year, when the equity market started its bull run in the first quarter of 2009.
This share price crash has cost billions for shareholders and many pension funds and the pressure being stepped up by the US means the suspension of their dividend is becoming ever more a reality. Investors have almost lost all faith in the stock as the falls have seen just one decent day of gains at the end of May before the relentless selling continued. Many analysts still insist the selling is over done and that the stock is still a buy, but they seem to be increasingly in the minority. We can’t expect things to get any easier for BP either, with the leak not expected to be fully stopped until August; the thousands of barrels of oil pumping into the sea will have an environmental impact that’ll last for many years.
The FTSE continues to be supported around the 5000 level, even though it tested the lows below there earlier in the week. Markets have been assisted by some good news out from China and once again it’s the Chinese economic data that is determining the direction of equities. Their booming economy is benefiting further from a big jump in exports, and for once investors can take cheer from some news that isn’t focusing on the sovereign debt crisis and Greece’s likelihood of default.
5000 remains the key area for the FTSE and below there 4900, which for now has keep further losses at bay. There’s belief that the moves of the last couple of weeks have a bit of a consolidation feel about them and the move from here could be a move higher towards resistance. It may be the most unlikely scenario, particularly when recent surveys of analysts suggest that Greece is almost certain to default and the EU will have to break up, but when sentiment is at its extremity is usually when the market’s finished its move in a certain direction and we’re set to turn the other way.
Economic data is thin on the ground until later this evening, when the US Fed beige book is released. The last one showed that economic activity had increased in 11 out of 12 Federal Reserve districts and this one is meant to indicate further improvements in the labour market, despite last weeks worse than expected NFP. All in all it should show the overall economic situation in the US is on the mend.
On the currency front things have been a little quiet, with EUR/USD remaining firmly below the 1.2000 level and not finding much love. It’s been hovering around the 1.1950 level for the past few trading sessions and there’s barely been more than a 100 tick trading range, but buyers are just nowhere to be seen. 1.1875 remains supports meanwhile 1.2010 is resistance.
Cable has bounced well following yesterday’s sell off, after Fitch stated the obvious that the UK faces a mountain of debt to climb that’ll take years to sort out, but for now the politicians seem to be making the right noises. That said, it’s their actions that will of course speak louder than words and we wait with bated breath for the emergency budget on 22nd June.
Gold has come in for a bit of profit-taking around the 1250 area once again. At 1235 this morning the daily chart looks ominously like it’s formed a double top, so bears will be selling around these areas with stops around the 1250 area, whilst bulls will be taking their profit. 1220 is a key area of support, so a break below here could open up 1195 and if this is a double-top, even lower prices could follow.