Stock Market Rally vs Bank of England Commitment
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Trading Features / Strategies from Simon Denham of Capital Spreads.
So the Easter weekend is over and, as we wade through the snow drifts, spring is in the air!
Markets look to be on the up this morning as the early call is for the FTSE to come in some 120 points higher at around 5620 after yesterday’s rally in the US and Far East. Notwithstanding this opening call, the performance of the UK’s premier index has been something of a disappointment in recent days as we eye the 800+ point bounce in the Dow and today’s 1000 point push in the Hang Seng. The relief rally caused by the Fed’s various moves seems to have, largely, passed us by. On an equivalent move for the FTSE versus the Dow / S&P we should be somewhere around 5800.
The recent weakness in commodities and the little spat over HBOS have done their damage and investors are increasingly nervous about making any major plays. It seems an age since the last serious big takeover rumour and conversely we appear to be in a zone where those acquisitions that have taken place seem to be causing more pain than gain. If we turned back the clock a year I am pretty sure that the various board decisions taken then would now be reversed.
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I see that the papers are still full of the ‘search for the abominable rumourman’ but it is difficult to see what, if anything, this will achieve. What if the ‘culprit’ is not an FSA regulated person? Private citizens are allowed to make what comment they like, it is up to the listeners to decide if they wish to believe it or not. The fact remains that the gossip hit a market that was ready to believe in it and for that sorry state of affairs I am afraid that the finger of blame must surely be pointed at the BOE. Unlike all other central banks, they have remained silent and aloof for virtually the entirety of the last 6 months. Whereas the Fed and the ECB have added liquidity and confidence when required the BOE has stood aside and left investors with the impression that our major banks are one rumour away from destruction.
HBOS will almost certainly survive this onslaught but answer me this. If you were a Finance Director responsible for the liquid assets of your company would you risk it and leave them in situ? Or would you say ‘retreat is the better part of valour’ and move your company’s funds to another institution? These are the questions on the minds of a great number of people and it is this thought process that requires that the BOE state publicly that, in the current scenario, any short term liquidity problems in our financial institutions will find a willing lender from the central bank. Maintaining a stable banking system is, after all, one of its most fundamental remits. NOT the recently awarded, and frankly diversionary, independence over interest rates.
The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'Stock Market Rally vs Bank of England Commitment' edited by SD, updated 25-Mar-08
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