Regulation after regulation has been announced by this Coalition government so far who are in danger of passing more legislation and new rules than many of the previous administrations.
The department of business’s slogan to “rip up red tape” looks seriously in danger of being moribund. New reporting rules and more requirements to publish more information is only going to make private companies’ jobs harder when red tape is exactly what is supposed to be being curtailed in order to free them up so that they can attempt to grow. It’s growth and job creation that are needed more than anything at the moment and not new rules on how someone should be paid if they are doing a responsible job. It comes down to the anti banker sentiment again with people still seething (and rightly so) from the problems that were caused back in 2007 and 2008, but to prevent people from being paid bonuses, many of which are contractual, for doing jobs that most others would shun doesn’t give a great impression of UK plc. This government has been trying to champion its drive to reduce red tape, but more and more we see it pandering to the electorate with sound bites as opposed to making the tough decisions.
A great deal of this can be said for the situation in Europe too which doesn’t seem to be getting any better, despite a renewed increase in investor’s appetite for risk. So this morning the markets are suffering from a little bit of profit taking after yesterday’s strength as we see the same old situation again. We’ve seen it all before where negotiations in Europe run on longer than expected as bondholders and ministers can’t agree on a deal to reduce Greece’s debts. Yet this doesn’t seem to be dampening the mood of the bulls all that much who’ve started the year with a spring in their step with many equity markets having entered a technical bull market. The likes of US indices have rallied over 20% from their 2011 lows, for the FTSE it is 20% above it’s intraday low, but not yet 20% higher than its closing low of last year. European indices still have to record this recovery so to say we’re in a bull market maybe premature. This could also be a false dawn however as we saw indices enter a technical bear market last year, so we can’t get too excited just yet as the see-saw for equities continues.
There’s little in the way of any economic data today with European PMI numbers, which are expected to show a slowing of the contraction for both manufacturing and services, followed by the UK’s Public Sector Net Borrowing which is by no means a market mover, but it will be interesting to see if the expected decline is released.
EUR/USD remains firmly above the 1.3000 level but the bears are still out there. Figures are showing that there are more sellers of the single currency than there have been for a while so the recent strength seems to be attracting more bears. It’s hard to believe that this move higher for the euro is more than a bear squeeze, but the longer we remain above 1.3000 the more the bears will doubt their conviction.
Carrying on the bullish trend, gold got another boost yesterday, rallying 10.6 bucks to close at 1676.7. Demand was given a leg up by the slumping greenback, meaning risk adverse investors were in search for an alternative safety haven amid the European uncertainty. Chartists will be aware that the medium term trend has now turned sideways and the chart shows the 9 and 14 day moving averages crossing above the 40 day MA. At time of writing, the precious metal is seeing a small pullback and is trading down at 1672.0.
The main driver for crude prices yesterday was the announcement referring to the agreement by the European Union to ban Iranian oil imports from July 1st. This comes in response to Iran’s reluctance to halt its nuclear program and has put the energy sector on red alert, with the Middle Eastern nation threatening to close the Strait of Hormuz which allows around 20 per cent of global crude to be shipped through. The other factor driving prices higher was the weakening US dollar, meaning that crude looked like a good bargain to potential buyers. Currently, Brent trades up at 110.92.
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