The FTSE is reacting to the 400 point rally in the Dow last night with another 80 points to the upside as we regain the 5700 level with some ease. The FTSE 100 Spread is now at 5775 -5776. Financial institutions are likely to be the biggest gainers as UK banks with their limited exposure to the Toxic debts so evident across the globe will be bolstered by the new liquidity available. And if the moves by the US do in fact work then this should help across the board. Many punters will be shy of getting too enthusiastic as we have seen these rallies too often over the past few months.
Looking at the Forex markets the added dollar liquidity push had a curious effect in that the greenback actually rallied yesterday afternoon when many would have expected the opposite. There may be a feeling that the Fed may not be as aggressive on the rate cutting front as they await the effects of this latest wheeze to filter through. This morning though the dollar is again on the back foot as the pound goes back above $2.0100 and the Euro probes towards $1.5400 once more. There is building support for the pound to remain above $2.0000 as yesterdays action briefly tested the level before retracing to the current price. In fact, the four hour period between 11 and 3 yesterday saw an attempt at the top of the range at $2.0215 and at the bottom already mentioned. With the current pound / dollar spread of 2.0112-2.0115 we are sitting comfortably. However, as always, spread betting clients are looking for levels to sell anything pound orientated so the pressure with no new news may be to the downside versus all the majors.
On the commodity front Gold, yet again...did nothing. An early attempt to break higher had as much luck as the previous day’s attempts to break to the down side. We seem to be magnetically attracted to the $970 level where we open this morning.
On the other hand, the problems with consumerable commodities continue with rallies across the board led by Crude Oil (up for the fifth day in a row).
Softs also put in a good performance so we can expect the cost of everything from Sugar to Coffee to start impacting out supermarket baskets quite soon.
The Brent Crude Oil spread is now at $104.96 - $105.01 down a bit from last nights close but not particularly violent in early action. Yesterday 50 cent ranges came and went on a moment by moment basis and it was an almost impossible market to trade sensibly. Hopefully today will see a little stability return but I am not holding my breath.
Today sees the FTSE opening a nice bit stronger after yesterdays sell off but as with yesterdays comment this does appear to be a recurring event where buyers drift into play in the sunshine of a bright new day only for sellers to regain the upper hand by the close.
The FTSE spread this morning is 5659 - 5660 up about 30 points. Both the Nikkei and the Dow have recovered some composure overnight and this will bolster the early activity. All the major indices are now at lows since the dramatic drop and recovery on Jan 21/22 when the Fed made its emergency 1% rate cut. The States have now cut rates to 3% (and are expected to go another 75 pips this month) and President Bush has announced a huge fiscal stimulus package but none of this seems to be bolstering sentiment. Cut to the UK, where we appear to be under the control of a Central Bank and a government which appears to believe that if we close our eyes, pretend nothing is going on and sit very, very, still then the whole thing might not notice us and just pass us by.
Sterling weakened slightly yesterday as the general drift away from the currency tends to reassert itself when nothing much is going on. Cable briefly spiked above $2.02 but ended the day down at $2.0090 - $2.0093 where we remain this morning. Traders are selling any rallies with us but are very cautious and are quick to get out at any adverse move.
With markets being so volatile the costs for getting anything wrong are now becoming quite dramatic particularly in the commodities.
Crude Oil went walkabout on the announcement that there was no help to be found from OPEC and just for once you can see their point. They have a finite amount of the black stuff (albeit enough at current extraction rates to last another century) but they probably see no reason to perpetually increase supply merely to reduce the price of virtually their only export and at the same time reduce the longevity of the product itself.
As oil reaches higher levels the price hike should create its own brake on increased use. In the UK a Litre is now around 105 - 110p, much more would almost certainly have those with alternative transport choices think in terms of a change. In the States where (perversely) the lack of high taxation means that petrol prices are much more directly influenced (on a percentage basis) by the cost of Oil the impact may be even greater.
Oddly enough in all the fun over the past few days Gold has actually done very little indeed. In the past few years any price consolidation has generally been a precursor to yet another sharp move higher so bears will be watching the boards very closely. The current gold spread is $973.0 - $973.5 is up about a dollar but is well within recent days trading ranges.
The FTSE has shown a little resilience this morning. It’s now trading 40 points up from where we were originally calling the market at 7am. But, the positive start may not last long following the dramatic drop in the US after the bad employment data on Friday. Asia was also weak overnight (19 month low hit by the Nikkei). By all standards things may be a little quieter this week with little in the way of economic data, however Wednesday will prove an interesting day for the UK's Chancellor who releases the details of his first ever budget. The man hasn't been shy of any political turbulence recently and as 80mph winds lash across the UK it looks like the week may be equally unsettled for Capt. Darling.
There seem to be more and more claims from analysts that the US is in recession and the questions now are a) how long will this negative growth last and b) has this been priced into the equity market? The FTSE is currently some 16% off its 2007 highs and 10% down on the year so far, with the Dow making similar loses. Only 2 months ago when the market was subject to mass selling many people were calling this a new bear market. With the FTSE failing to hold onto the 6000 at the end of February and four big declines out of the last five trading days, these claims don't seem unreasonable.
However, for the time being our spread betting clients seem to think we're over the worst and are largely long the FTSE, Dax 30 and Wall Street.
The dollar is weaker this morning with euro/dollar just below its all time highs trading at $1.5380. Sterling is also stronger against the greenback at $2.0170 showing that the structural difficulties faced by the dollar are very much in tact. The more the US economy weakens, then the more likely it is that the Federal Reserve will have to cut rates even further, which is unlikely to stop their currency from continuing to weaken. What's even worse is that it still doesn't seem to be helping their exports either with the world's biggest economy ever relying on the new power house China to provide them with cheap goods.
Crude Oil is also just shy of another record high and clients seem to be increasingly trying to pick the top. Inventories have been propping up the market and for all money that clients are giving up on oil, they are making back on gold.
Some profit taking on Friday saw a bit of a gold retracement back to the $970 level, but with almost every pull back it seems at the moment that it just presents another buying opportunity for the bulls. Spot gold is at $977.8 as I write.
The recent support in the markets is looking fragile this morning after the US inspired rally yesterday has seen no major follow through in early action in the Far East. The FTSE is opening unchanged but sellers are outnumbering buyers in early action by almost 2 to 1 on our books as Spread Betting clients take what profits they can from the positive day yesterday and start to set up shorts.
FX markets are hitting the dollar yet again as the Yen recovers some of it losses of Wednesday and the euro hits new highs against the greenback and pound as sellers are run down in the one way traffic. With the Fed likely to cut further and the BOE and ECB still worried about inflation the poor old dollar has few friends just at the moment. Much of the recent strength in the commodities markets can be laid at the door of the currency in which most of them are priced. In Euro terms Gold is actually 30% lower than the apparent current value. With the pound either stuck to (or falling) against the USD imported one off inflation shocks can be expected.
Today's BOE decision should keep the markets quiet until then but the speculation that the Uber Hawks in the MPC will maintain rates at current levels makes equities look fragile and Sterling looks like the bet of the day. The pound still needs to break and close above $1.9960 for a change in the current bear direction. Today could be a good one for that to happen. If we fail again this time then that will make it three failures which is generally a pretty negative signal.
The FTSE 100 is up 25 points and this is actually a pretty good performance given that it gave up almost 30 pips in ex-dividend value last night. We are still below 5820 though which may give the bulls some pause (even though it means nothing on a yield/value basis) as this has proved something of a support / resistance level over the past year. Likewise 5720, from where we bounced at the worst point yesterday, will be focussing minds as we look towards the immediate direction. The index has now had five down days in a row and this type of momentum can be difficult to turn around.
On the FX markets the Dollar has recovered some poise but the principal loser has unfortunately been the Pound once again. Vs the Euro we are at all time lows (again! put another record on). Against the Yen we are currently bang on support at 204.90. For the last two trading session sterling has actually traded below this but has managed on both occasions to claw its way higher by the closes. Pressure on the currency appears to be growing and with a big Gilt issuance programme this year this is unlikely to slacken in the short term.
As mentioned commodities have had a bit of a fall out but in reality are just back to where they were a week or so ago. The Capital Spreads Accounts are now very long indeed of virtually every product (even things like Lean Hogs and Soybeans). This may be a worrying position as, if our clients are this way round, then (probably) most retail spread betting company’s clients are also very long. It would not take much to turn yesterdays little fall into a full blown pull back.
The FTSE opened 80 points lower yesterday and then proceeded to trade in a choppy range between 5780 and 5840 before closing at 5820. Today sees the open about 20 higher at 5835 but to be honest there seems little pressure in either direction. In the absence of any particularly bad news overnight small buyers are likely to drift into various stocks which may cause some upward influence. Commentators are beginning to worry about the effects of the weakening dollar on the US export market which still accounts for a heft proportion of UK and European business. With the US consumer battered on virtually every front (housing, employment, just general sentiment, etc) the rising cost of imported manufactured products is likely to start to bite.
With the dollar coming in for such a pounding the travails of the pound have been slightly hidden. Historically we look towards the gbp/usd cross rate for our impression of the strength or weakness of sterling. Versus the Yen we are now back down at the lows below 205.00 and the Euro is quite comfortably maintaining its level above £0.7600.
With JPY, 204.50 and 203.50 should see some support but the trend remains very much to the downside (as I have repeatedly mentioned over the past few months) and anyone holidaying in Europe this summer will be made painfully aware that prices (in sterling terms) are 15%, yes 15%, higher this year than last. This puts our current 4% RPI in perspective.
Crude Oil went walkabout yesterday with the price for Brent shooting up to $102.30 before slumping back to under $100. The Crude Oil spread and is currently at $100.40 -$100.45. The price action looked very much like a bear squeeze taking out weak sellers and may be the signal for a bit of a sell off. Having filled up my gas-guzzler at the weekend, and being stung for over £100 for the privilege, one can but hope!
This morning sees the UK’s reaction to the 600 point plus drop in the Nikkei and the general 3% declines across the Far East exchanges. The FTSE is called another 80 points lower as we, yet again, trade the 5700 to 6050 range. Three sessions ago we were looking at breaking above 6100, this morning the FTSE Spread is called at 5805 - 5806. There is some good support around the 5800 level which may bring out some of the ‘bottom pickers’ but the advice must still be to sit on your hands. We can easily fall much further than this if buyers do as previously and just hunker down in their shell holes.
Trading remains almost random and it is difficult to say that ‘this or that’ is likely to happen when news / events / stories seem to be all taken in a seriously jaundiced light...
FX markets had another go at recent dollar lows in early action this morning but buyers were as strong this time as previously. The Euro has seen some solid selling at the $1.5240 level (as we saw on Thursday and Friday) and has reacted with a swift drop to $1.5185 - $1.5187. The markets appear poised for another dramatic move but, unfortunately, the direction is not clear. There will be a lot of traders who have sold the Euro above $1.5000 and these may be considered ‘weak’ holders. There is a good chance that a new move will develop to the upside to try to squeeze these positions. On the other hand, it cannot be denied that a $1.50 EUR / USD cross is unsustainable in the long run as Europe would simply grind to a halt as it’s competitive position erodes away.
Sterling is weakening in line with Euroland this morning at $1.9815 - $1.9818 vs the dollar but has already rejected the all time lows against the Euro of £0.7680 in early morning action in the Far East.
The one bright bullish area is the one that we would all wish to be bearish. Gold is trading another $7 higher at another record level, $984. Silver is trading above $20 which means it has moved over 15% in the last two weeks. The Platinum market seems to be pausing for breath having run out of steam with current prices around the $2150 level. The recent moves may be more a bear squeeze as there were (apparently) some heavy shorts built up in Gold and Silver in the low $900’s and mid $17’s respectively. If we can maintain these prices for a bit then the next push higher cannot be long coming. However the probability of a major reversal are also increasing with every dollar we move.
Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Markets March Spread Betting' by DB, updated 14-Mar-08
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