St Valentine didn’t provide a box of chocolates or roses for the equity markets yesterday which tracked sideways as investors were distracted by continued social unrest in the Middle East.
In Egypt many demonstrators remain in Tahrir Square and strikes are bringing the country to its knees. In Iran, Yemen and Bahrain there were also protests as a wave of activists started to galvanise across the region.
After having seen two regimes brought down in as many months, any escalation of the tensions would cause considerable uncertainties, as well as the ones that are currently gripping Egypt. A domino effect in such as unstable part of the world will not be good for the markets.
Chinese inflation numbers have come out lower than expected but at 4.9% which is above their central bank’s target of 4%. This has gone some way to placate markets which were expecting a number well above 5%, but this probably won’t mean an end to the tightening from the Chinese who are likely to continue raising rates on top of the three hikes they’ve made in recent months.
For the UK, CPI issues are also causing monetary policy makers major headaches. Today is expected to see inflation hit 4% and that’s not going to be the peak according to many analysts, even the Bank of England themselves. If the number comes in higher than expected then calls for a rate rise will become louder. There’s every chance CPI could come in greater than 4% as after all oil prices have driven up petrol at the pump and January’s VAT rise should also provide some upward pressure, although the effects of this are not expected until subsequent months. In all honesty though we can speculate as much as we want as to the connotations of such a figure, but we should know more after Wednesday’s quarterly Inflation Report.
So the FTSE is just in the red this morning. There was some slightly disappointing German GDP data earlier that came out at 0.4% when 0.5% was expected, a decline from 0.7%. So around the 6050 level to the upside resistance is at the year’s high of 6090 and then if we get above here the next target is 6140/50. To the downside the 6000/5980 area is quite an important support area.
The euro suffered further weakness dipping below 1.3500 before finding a bit of support around 1.3425. European finance ministers meeting in Brussels had another meeting over a coffee and a croissant but without revealing any radical actions to address the eurozone debt issues. A rise in yields of the ten year government bonds of Portugal and Spain also added to the selling pressure for the single currency, which suffered most of its weakness against sterling as GBP/EUR had a go at the 1.1900 level. This morning EUR/USD is at 1.3480 having been above the 1.3500 level all night long and GBP/EUR is at 1.1895.
The dollar made a bit of ground overall but this did not translate into the usual weakness for gold which saw some buying to take the precious metal back above 1360. This morning we see flat trading with gold trading at 1365 so levels to watch to the upside are 1366 and 1375 with 1356 and 1350 to the downside.
Crude prices are on the bid as the protestations in the Middle East continue with Brent within touching distance of its recent highs, whilst Nymex continues to lag its cousin however just about finding some support around $85 again.
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