Once again the bounce we saw yesterday fizzled out and investors simply can’t seem to push us meaningfully higher.
The 6000-15 area was seen as an important near term resistance level as it was where the FTSE had previously failed in the middle of May and it kept the bulls at bay. This morning the market cannot make its mind up following a mixed performance from US markets that at one point looked like they would post gains of around half of what they eventually did.
The data from the US yesterday was poor to say the least. There was housing data that showed a double dip decline in prices, so house prices in the US have retreated back below their low in 2009, manufacturing numbers came in much lower and the more important consumer confidence data was way below expectations. All these are a toxic recipe on the macro economic front, particularly when you have an economy that is so reliant on consumers. For the US markets to recover from their lows and end up near their highs last night was quite an achievement but baffling at the same time.
This morning the European markets have not followed through with this strength and are proving a very mixed bag. The failure to push on through is a concern for the bulls, in particular the FTSE which is being a real laggard when compared to the Dax or Dow. Bulls will argue that the long term uptrend remains very much intact, whereas bears will argue that the rally is running out of steam and has been for most of the year. Constant failures at the highs and recent lower highs and lower lows are warning signs that a further correction might be imminent.
For the FTSE in the near term the 6000-15 area, where we have failed twice now, is a crucial near term resistance level, with 6035-50 above here, so a few hurdles to overcome before the index can have its third crack at taking out 6100 this year.
Economic data comes in the form of manufacturing PMI numbers which, like their US counterparts, are expected to decline from 54.6 to 54.3 but remain above the crucial 50.0 level which suggests expansion in the sector. Already we’ve seen manufacturing numbers from the EU and Germany come in lower than expected so it’ll be a feat if the UK number surprises to the upside.
Later on today we get the prelude to Friday’s non-farm payroll as the ADP private payrolls are released. These are expected to come in at 175k and whilst the number is not regarded as the bigger NFP, it can move the markets if it wants to.
The euro has continued its onslaught on the dollar this morning after authorities stated there won’t be a restructuring of Greek debt. The concern for the dollar this week is that non-farm payrolls won’t be as good as expected, although once the figure is released, it could decide the short to medium term future for the currency. It seems to all have come at once for the US, as consumer confidence fell in May to 60.8 from 66 last month, and the Chicago Purchasing Managers Index declined which could mean that recovery is coming to a standstill. The euro is currently trading higher at 1.4437 against the dollar.
Good news for the Aussie dollar as it rose against its major peers after a report showed the economy shrank last quarter by less than was expected. Although it had a sell off against the US dollar due to the number of building permits declining by 1.3 percent in April, the report was strong enough for the Aussie to rebound, and is trading 0.6 percent higher this morning at 1.0745.
Risk taking was more the theme for yesterday as investors piled into equities and in line with a weakening dollar, gold declined to 1534 bucks. With concerns over Greece not as prominent, investors aren’t too concerned with the safe havens for now and gold is trading down today at 1532 bucks.
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