Spread Trading 9 Sep 10
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Trading 9 Sep 2010
The FTSE has managed to reverse a weak start to this morning’s trading ahead of the Bank of England’s interest rate decision which shouldn’t do much to change investor optimism.
Interest rates will have to remain low for a considerable length of time and, despite inflation remaining above target, taking monetary action to rein it in would give the economy a double blow along with the austerity measures that will be put into action next month.
The risk to the recovery is too great to raise rates this year, so we could be looking as far out as the middle of 2011 before we see the Bank of England making a move, unless of course inflation remains stubbornly high and action is unavoidable.
As mentioned the market was initially lower, tentatively sitting just above the 5400 level, but now it’s broken to the upside. This is a move is good for the bulls who’ve been waiting patiently for confirmation that the market wants to head higher beyond the recent 4850-5440 trading range.
The FTSE has now spent all of September above its 200 day moving average, so the bulls will be eying up a test of the April highs before the year is out.
US spread betting markets however are finding it a little more difficult to get beyond immediate resistance levels, so for now are lagging the UK benchmark’s lead. As regularly stated in this comment, European and UK equity markets look attractive from a yield perspective and more so than US and Japanese equities.
US futures are a little higher as a result of this morning’s strength in Europe and at the time of writing we are calling the Dow Jones to open up 45 points at 10432 and the S&P 500 6.6 points higher at 1105.5.
For many it’s still hard to understand why equities aren’t tumbling lower with the prospect of a winter of austerity around the corner, high unemployment and consumer confidence that is still very fragile.
We mustn’t forget that equity markets are forward thinking and investors seem confident that six months down the line cash rich companies and a now stable banking sector are enough to ensure that corporations will grow and help keep the economy growing.
The Bank of England’s decision to keep interest rates on hold has allowed a little rise in the Dollar against Sterling with Cable just easing off the $1.5500 level. EUR/USD is flat around $1.2720, but just seems to have found a little support around $1.2700.
Consolidation in both cross rates has been the order of the day for the last month and it’s hard to see this change much unless there’s something exciting that happens, e.g. a sovereign default of similar.
September and October can often be volatile months for markets, but so far this month that can’t be said so maybe things might start to move around a bit more in October.
Gold continues its grind higher, just below $1260 and the move upwards since July resembles the “wall of worry” that we saw in equity markets earlier this year before they corrected to the downside back in April. Bulls beware.
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 9 Sep 10' edited by SD, updated 09-Sep-10
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