This morning is seeing a bit of stability across the various indices after the US closed close to its lows. However, as with my previous comments, it would be a brave investor who tried to bottom pick their way out of this market. Major players continue to shun equities and after the huge rally in Gilts yesterday you can see why. Values for State debt are now at all time highs (or thereabouts) and you can understand why with base rates at 0.5% and no real prospect of any hikes for many, many months. The spectre of deflation continues to hover over the markets.
Clients continue (despite the warnings) to try to buy into the falls and yesterday was particularly bloody for some with banking and insurance stocks combining with the indices weakness to make it a very grim day indeed. While hedge funds are rumoured (yet again) to have made money shorting banks the same cannot be said for the bulk of our spread bettors who unfortunately bought continuously into any weakness.
The only point of pleasure yesterday was in Gold where the big money was to the long side. The equity weakness and the announcement of the huge injection of cash by the BoE (effectively devaluing folding stuff once again) gave the precious metal another boost to dispel the recent falls.
As mentioned on Thursday though, we do need to attack the $1,000 dollar level soon as the resistance has been ominous.
The yo-yo effect in currencies continues unabated with weakness one day followed by strength the next, today sees selling in the dollar as we await the dreaded Non Farm Payroll number at 13.30 this afternoon. Punters will not be keen to go into the numbers with too much exposure so we will probably see a bit of strength in the Yen as positions are unwound and some small weakness in the dollar for the same reason. After the effect of the numbers has been dissolved we may see these positions being reinstated.
The NFP data is likely to be very bad and it is very difficult to say what effect this will have. We already know things are grim so will confirmation of this fact send us down again or will there be a moment of “ok its bad, but we have priced it in already” and a small bounce develop?
Last Friday saw weakness towards the close in the US markets as traders feared holding positions over the weekend. Quite rightly as it turned out. Will they do so again?
Sitting on your hands remains the best option at the moment but with opportunities seemingly all over the place this is a difficult strategy to play.
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'Spread Trading 6 Mar 09' edited by SD, updated 06-Mar-09
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