Spanish downgrades and bombings of oil installations in Libya are a recipe for a sell off in European markets this morning.
The FTSE is below 5900 and continues to struggle to hold onto the 6000 level. The market’s reluctance to get back above it following Monday’s swift rejection of the level is starting to weigh on the sentiment of the bulls. The key levels to the downside remain 5850 and 5800 whilst to the upside resistance is seen around the 6040/50 area and then 6100. Basically unchanged for the whole year so far!
So it’s all about UK interest rates today. The BOE’s credibility continues to be called into question as they bow to the pressure from politicians by not raising rates and who can blame them really? We are dangerously close to a double dip recession, government spending cuts are adding more people to the dole queue and taxes are rising. A rise in interest rates will simply add to the pain and could be the final nail in the coffin for the recovery.
This is a serious dilemma that the Bank faces because they are ultimately responsible for keeping inflation under control, which is proving an impossible task. Now inflation is acting like its very own tax too as price rises eat into everyone’s disposable income that is barely going up as firms freeze wages. The justification used by the Bank is that high inflation is being caused by global imbalances and high commodity prices, things that are out of their control. Whilst this argument does have some degree of weight behind it, it’s pretty much what they’ve been saying for the last few years and the excuse is starting to wear thin.
At any rate it’s unlikely we’ll see any action from the BOE until at least after the first release of Q1 GDP at the end of April. That makes May the most likely month we’ll see a hike, but not if the dreaded double dip is made official.
Before the rate announcement we get UK industrial and manufacturing production numbers which are expected to show a bit of a bounce from December’s figures. Other economic data comes in the form of the US trade balance and the US weekly jobless claims which are expected to remain below the 400k level.
FX markets continue to have a euro negative tinge to them. EUR/USD tried to get back above 1.3900 but was pushed back below in the afternoon. Portuguese and Spanish 10 year bond yields pushed higher once again keeping any gains for the euro to a minimum and this morning’s downgrade to Spain is further weighing on the single currency. At the time of writing we’re at 1.3815 so key levels are seen at 1.3800 and 1.3750 to the downside with 1.3855 and 1.3940 to the upside. The 1.4000 level remains the major hurdle to overcome in the short and medium term.
Gold drifted sideways throughout the day and has yet to have another look at 1440. The precious metal is at 1427 at the time of writing. Upside and downside levels are seen at 1437/41 and 1425/17 respectively.
OPEC’s reluctance to call an emergency meeting and reassurance that they’d meet any shortfall in supply brought crude prices back a little but the declines were short lived as bulls returned to the market to push Brent back above $115. The Libya issue also continues to underpin both oil and gold. This morning Brent is at 116.10 so key levels to watch in the near term are 113.40 and 118.10 to the upside.
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