Judging by the way September has started few would have thought that August could have been the month that it was.
Markets seem to have steadied themselves so far this week but that doesn’t mean the volatility is over. Already this morning there’s a little bit of nervousness ahead of today’s non-farm payroll data and we could see some fireworks depending on how far from estimates the number comes out as. Expectations are for around 90,000 new jobs to have been created but judging by how August played out and the damage it caused to consumer confidence, there could well be a number much lower than this, particularly since August is a quiet month for hiring anyway.
At the moment neither the bond or equity markets are pricing in a double dip recession, but they have certainly indicated that the likelihood is higher. Despite the recent rush by economists around the globe to downgrade their GDP forecasts the consensus is still that we’ll see growth of around 2.5% for 2011 and roughly the same in 2012, but it really is a case of keeping fingers crossed in a hope that another recession can be averted.
The threats to this growth however are a real and present danger, with the main worry at the moment being Europe of course. Investors have been calling on European leaders to get a grip on the situation and once and for all agree on something radical that will eradicate all the risks with a lasting solution. The situation has gone on far too long now and is in dire need of swift action. Unfortunately, the best solution of European bond will never be accepted by Germany, the key to any resolution.
As mentioned this morning the FTSE is suffering from weakness in the Dow last night and the danger for the bulls now is that the 5400 level is rejected again just as it was a couple of weeks ago. With the FTSE back in the mid 5300s, 5355 at the time of writing, this is a little higher than where we were calling it in the early hours. The markets have recovered well from their lows, but the concern is that the up days have seen little in the way of volume leading to some to believe that there simply aren’t many bulls out there. To the downside near-term support is seen at 5280/50 and to the upside resistance is seen at 5415/55/85.
FX markets continue to remain a little placid with many pairs just drifting sideways. Hardly surprising really when you have the non-farms out later today and so we could possibly see this trend continue at least until 13h30 London time. A couple of minor break outs to the downside are supporting the dollar which has been just about holding it's own at the moment with the dollar index just above 74.000.
For individual pairs EUR/USD was one of the pairs that saw a move lower yesterday which is following through today. A break below 1.4300 has taken us further down to 1.4220 this morning and so levels to watch now are seen at 1.4185 below and that previous support seen around 1.4300 and then 1.4350.
Gold is up a little, a mere 100 points to 1836. The yellow metal remains well supported as long as the economic data continues to disappoint to the downside and especially for as long as the eurozone crisis rumbles on. This is seen as the main contributing factor to the strength in gold and not the increased prospects of another round of QE from the Fed, so as QEIII does become even more likely, we could see the $2000 targets many bulls have taken out sooner rather than later.
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