FTSE Markets doing their very best to break above the 5200 level this morning after the weekend press revealed that healthy disagreement within the finance ministers looks like preventing yet another raid on the financial sector.
Gordon Browns knee jerk reaction to virtually every problem, namely “tax it more”, has run into US, IMF and Canadian barriers. Our Gordon seems to be running out of Bogey Men to blame and tax. The Rich and Banks are easy populist targets, one feels that possibly Estate Agents, Journalists, Lawyers etc etc might be next on his list. The role of demonising one sector of society to maintain and build power has been tried and tested throughout history (a certain moustachioed dictator springs to mind) generally to disastrous effect. Unfortunately for the Labour Party they have really shot the ‘blame game’ bolt rather early, by the time the election is upon us such stuff might finally be revealed (even to the UK population) as being the side issue it really is. Politicians might like to find somebody else to criticise when their well meaning but badly thought out and unfunded policies go awry but the huge Mortgage Backed losses of the financial sector had more to do with Clinton’s forcing through home lending to the lower income households and to the huge state spending programmes of all the western economies. They were keen enough to accept the tax revenues from the bank induced growth of the last 12 years but remained blind to the structural defaults that were being built ever higher.
The problem with the public sector that we now have is that it was always dependent on the private sector continuing to roar away. The ‘New Labour’ strategy seemed to assume that boom and bust really had been defeated (an absurd statement even by the standards of their spinning). There seemed to be no thought as to what would happen “if they were wrong”. How could the funding of massive ‘cost centres’ be sustained without the revenue flows from the rest of the economy.
The sudden move towards a Tobin Tax in financial transactions is applauded by this commenter (!?) as Spread Betting would presumably be outside its remit (as it is a bet not a financial transaction), resulting in huge increases in business for us! But as with all these ‘sudden enthusiasms’ we must believe that this speculative statement made by our great leader was more for the BBC headlines (bashing banks again) rather than as a serious policy initiative.
Anyway, morning action has all the markets moving higher once again with the weak dollar yet again seeming to be the catalyst. As mentioned a few times in this commentary every time the dollar rallies asset markets begin to look weak and every time it falls they rally! The greenback really does, currently, appear to be the ultimate hedging tool.
The FTSE is now just shy of 5200 as the last of the bears start to wonder if they have got it wrong and even our clients (who are always nervous of buying at highs) seem to be rather more confident that ‘this time’ we might make a break for it into new territory. With no data due out today the markets will probably remain buoyant as they tend to follow trend momentum in days with little to go on. We have a large number of stops just above the 5200 level and (as we cannot be unique in this) we must ask ourselves as the stimulus keeps on going, what’s to stop the markets from continuing their uptrend?
The currencies have started the week with a bang with sterling being one of the main beneficiaries of dollar weakness and also making a little ground against the euro. Cable is at a 3 month high this morning back over 1.6800 and despite the woes of the UK economy it’s still proving more favourable as interest rates in the UK are expected to rise before the US. After Friday’s non farm payroll the dollar has come under pressure and the current correlation between equities rising and the dollar falling is very much in tact.
As a result gold is breaking to new record highs well over the $1100 mark now and just around 1109 at the time of writing.
Needless to say oil is following suit and trying to catch up, but still below the $80 mark after Friday’s sharp correction lower.