Spread Trading 22 Jun 09
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Trading 22 June 09
The market has caught us off guard this morning. Initially we were calling the FTSE to open in the black around 5 to 10 points. The instant the cash markets opened the sellers were out in force driving prices down.
At the time of writing we are sitting on the 4300 level, still within this peculiar 275 point range we've been in for the past seven weeks.
When you look at the charts for equity indices at the moment, they all seem to have reached a point where they simply don't seem to know where to turn next.
Support is significant enough to have prevented any sharp corrections to the down side and buyers just dry up when we look like breaking through to new highs.
Ever since the markets returned to the levels at the end of 2008 investors seem to think that we've done all we need to do and almost packed up for the year.
There is probably a degree of uncertainty creeping in regarding the Iran situation and when I checked the prices for opening calls in the FTSE last night I was surprised to see the markets looking so chirpy considering what is unfolding in the Middle East.
Whilst the price of oil has remained unaffected by the crisis, it is unnerving to see things escalate in a country that is meant to be one of the most democratic in the region.
The market is not getting any impetus from the Xstrata/Anglo American deal. The only beneficiary is Anglo at the moment, being one of the few FTSE 100 stocks posting a gain.
A combination of the two mining giants will produce a company big enough to rival the mammoth BHP Billiton with sales of around £34 billion.
Xstrata has not been shy of doing deals over the last few years and has built a huge portfolio of materials to dig out of the ground. The deal is substantial and could lead to significant cost savings for both companies, but the size of it brings back memories of a large banking deal that was completed back in 2007 and we all know what happened in the aftermath of that.
We are still in the preliminary stages of any tie up, so expect the process to be long and drawn out in a similar fashion to the Rio/BHP deal that didn't materialise in the end. The real win for Xstrata will be Anglo's platinum mining division, which is something it has been looking to add to its armoury for some time.
On the currency front things seem remarkably quiet after last week's big moves. Although there was no big rise or fall in any particular direction, the trading ranges were large after big swings in both directions for many currency pairs, in particular cable which has been oscillating between $1.6620 and $1.6190 over the past week.
$1.6660 remains the high for now and there has been two failed attempts at getting above this level. The daily chart for cable looks to have formed a double and even triple top with resistance keeping a cap on gains for sterling.
Against the euro €1.1870 is proving a bit of a struggle for sterling too. Slightly better than expected German Ifo business data this morning has put a halt to sterling's advance for the time being.
Oil is back below $70 and for all the efforts to get is up to $75, it seems to have run out of steam for the time being.
The price of oil is very closely linked to equities at the moment with the markets almost mirroring each others moves. Technically crude look rather overbought, but with things looking increasingly unstable in Iran, any sign of continued unrest could lead to the next leg up for oil prices.
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'Spread Trading 22 Jun 09' edited by SD, updated 22-Jun-09
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