Many politicians still don’t seem to understand that financial markets price in uncertainty and risk if they feel that something bad is going to happen. Yields on Greek bonds have spiked because investors are more reluctant to lend to a country that’s highly likely to go bust, not because “spivs and speculators” have driven the prices higher. The same can be said for the euro, which investors are piling out of because of the same reasons and the possibility of the debt crisis spreading.
The Greek prime minister is off to the States now to try and curry favour with Barack, but he may not be given the sort of reassurances he’s after following the US president’s climb down, after calls for a big step up in regulation.
Memories seem to be very short lived for politicians who have completely forgotten that the ban on short selling financial stocks did nothing to help the decline of their share prices and subsequent investigations into shorting practices yielded nothing sinister. Once again, we see a knee-jerk reaction to legitimate activities within the financial markets, and it’s not just Greece who is suffering from the malaise of their budget deficit, but Portugal is too with their bond spreads also having widened significantly.
This morning the FTSE is once again reluctant to push on higher, sitting quietly above the 5600 level. Clients continue to sell around the 5600 mark expecting a correction. The sideways movement so far this week would not entice many people to buy at these levels. A move to the downside however will probably only serve to attract more buyers, as there needs to be a substantial decline to persuade the bulls that the rally is over.
A small improvement in UK retail sales masks the real problems of the high street. More and more shops are being boarded up and small businesses are really suffering under the pressure of a weak consumer.
The euro couldn’t quite hold onto gains from earlier in the day, but 1.3600 offered sufficient support. The euro has been over valued for some time and been due a correction. Of course there are benefits to such devaluation for all European economies, so a weaker euro shouldn’t be discouraged.
The euro continues to be well supported around these levels and looks almost set to overcome the bears, but the next leg down can’t be ruled out. With the Greek situation looking like it’s been contained (at least that’s what the politicians seem to think), it’ll take another catalyst of events for the euro bears to galvanise further declines.
The euro’s recent strength has been to the detriment of gold. A relationship that has completely inverted recently, whereby euro strength used to translate into gold strength, but now the reverse is often true. Momentum has run out for gold at the 1140 and 1135 area, and currently we’re at 1123, with the next support level seen at 1112.
Crude has once again rejected the $82 level with crude around 81.20 this morning. Any profit taking in the equity markets will most likely be matched by a further decline in crude. The dip might just mean bulls can add to positions and finally make a run at the $84 level, which has been eluding them since December last year.