So was it all just an aberration?
Are we still in a range between 5750 and 6200? Or is this a correction within the downward channel? It would appear from the price action this morning it is the former. After a sepulchral day yesterday to start the week, Chinese inflation figures released overnight appeared to signal all is well in world economies (by being higher than expected?!). So we duly shook off all negative thoughts of new lows on the year (which we set in the Nasdaq on Friday) and started the day focussing on green pastures. The FTSE is 0.5 % higher at 5810, the Dow is called to open around 12040 and the German Dax is a full 1.4% higher at 7190. Before we all get too carried away, let us remember that the S&P attempted to throw cold water on the party yesterday by downgrading the Greek sovereign debt, rating the chances of a Greek default at evens.
With positive expressions sounding from the analysts we must hope that we close above the 5780-90 level this evening as another failure to rally may drain away confidence rather faster than it arrived.
So with both China and India’s inflation gathering speed, and Greece continuing to fall into the abyss, investors have found sanctuary in equities and (for the moment) precious metals with Gold reversing some of yesterday's falls. The world’s largest gold producer, China, has been trying to cap price gains, and in doing so, has boosted interest rates four times since September, increased banks’ reserve requirements and permitted the yuan to gain in the region of 1.6 percent against the dollar. We have also seen India’s wholesale inflation gain 9.06 percent from a year ago in May, after an 8.66 percent jump in April. Standard & Poor has stamped Greece with the lowest credit rating for any sovereign nation (which presumably indicates that quite a few countries do not actually have a rating at all), supporting claims that the country may still default.
US Nymex at 97.50 is near the major support point of 95.75-96.00 built up since February on speculation fuel demand may falter as the US economy slows, countering signs of increasing industrial output in China, the world’s second-largest crude user. But this must be weighed against the fact that the more widely used Brent price is now at 118.50 (21 dollars more expensive). It was reported on Friday that Saudi Arabia are raising output to 10 million barrels per day (BPD) in July, giving evidence that it is taking steps to unilaterally increase supplies after the collapse of OPEC talks last week. But obviously, we still have a floor under the black gold’s prices though, thanks to unrest in the middle-east.
The euro edged up against the dollar on Monday, bouncing back from the lows as traders expected a round of short-covering to give the single currency only a temporary reprieve. Stop loss orders were sounding as the euro pierced through, dropping as low as 1.4293, painting a bleak technical picture. However, in later trading, investors saw a rebound, going into positive territory on the back of ECB President Jean- Claude Trichet reaffirming his hard stance on fighting inflation. The euro closed 44 pips up at 1.4414, snapping out of a 3 day decline. The cross has now broken above minor resistance at 1.4425/30 but is struggling to make it above 1.4460/70, the flow of money is still in the favour of the Euro as funds continue to reallocate out of the dollar and the minor carry trade adds to this attraction.
With an increase in UK interest rates slowly fading into the background, investors focused more on the issues of a faltering US recovery and euro zone troubles. The British pound gained 138 ticks against the greenback, finishing at 1.6366, after falling Friday to the lowest level since late May with the Bank of England stating that inflation is ‘reasonably well anchored’. Short and medium term trends are sideways, the long term is still bullish. This said, the hawks on the MPC were sounding the cautious note as for some obscure reason they consider that the BOE failing to meet its inflation targets in 34 of the last 40 months might somehow dent its credibility!
This comment is from Capital Spreads.
We do not endorse the information and analysis available in this comment and it is provided purely for information purposes only and is delivered as a personal view by the writer. Under no circumstances is the information in this comment to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. The investments referred to herein may not be suitable investments for all persons accessing this page. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. We accept no liability whatsoever for any direct or consequential loss arising from use of the information on this web page. Please see our Terms and Conditions.
