US investors return to the market today following their extended week end to see that the Europeans have taken it upon themselves to push us higher and it will be interesting to see what they think come mid morning today when the US futures usually start to make a move.
We’re calling the Dow to open exactly where it left off on Friday, so with no uplift there’s a chance that they might wake up and smell the coffee to catch up with the European gains of yesterday. Or they might just think that S & P’s announcement that the deal brokered for Greece is as good as a default is just that and send markets lower, with a whiff of profit taking thrown in for good measure.
This morning’s price action so far is enough for anyone to think we in that profit taking mode as the dollar’s up strongly and riskier stocks such as miners and banks are in the red, however the FTSE is actually flat to positive at the time of writing.
A run of bullish broker notes regarding European equities caused yesterday’s run higher and the FTSE’s close back above 6000 was a psychological victory for the bulls. There’s a belief that they have the upper hand and so will be targeting near term resistance at 6075/90 and then ultimately the year’s highs around 6100/30. Support is seen around 5950/35 and then 5875. The main concern for the bulls is that the recent bounce has been on low volumes, so there’s been a lack of conviction and many are sceptical that it can last. Clients certainly fall into the sceptical camp having been largely short of the FTSE since Friday and pretty much holding onto that conviction since then.
Economic data releases start to pick up from today for the rest of the week with UK PMI service data released this morning. This is an important number watched by many economists to assist in their predictions for GDP, which as we all know has hardly excelled so far this year and even threatened a double dip. As services makes up such a huge part of the UK economy it’s crucial to see this number remain firmly above the 50 mark, which it is expected to at around 53.3, so a tad lower than last month which was 53.8. This still indicates modest growth for services in the UK, so we’re not in double dip territory yet.
We then get European retail sales which are expected to track weaker data from the bigger European economies in May and report a decline from 0.9% to -0.1%.
The fact that the ECB is widely expected to raise rates this Thursday isn’t going to help the outlook for the European consumer either.
After trading near a three week high against the dollar, the euro has dropped off this morning and is trading around 1.4465. At first it seemed that S & P’s comments on a debt rollover plan was a positive thing, as it meant although Greece would be in “selective default” they would still honour the majority of its financial obligations. It now appears to have taken a turn as the ECB has stated it will keep accepting Greek debt as collateral for loans, unless all three major ratings agencies declare Greece to be in default.
The Canadian loonie has come off a three percent gain on the US dollar, as the suspicion from traders is that the currency has become overbought. Another factor is that the loonie isn’t exactly a safe haven currency, and after comments from agency S & P about Greek default, traders fled to the safer US dollar. The pair is trading at 0.9618 showing strength for the US currency at the moment.
Albeit staying below the level of 1500, gold posted an 8 dollar gain yesterday, up to 1494 as investors hopped, skipped and jumped back into the hedging favourite pushing it off the 6 week lows seen in the previous session. We’re where we left off from yesterday at around 1494 and key levels are seen at 1500/08 to the upside and 1490/78 to the downside.
Yesterday’s session for the black gold was not surprisingly quiet due to the Independence Day holiday across the Atlantic and a large majority of energy investors taking a peripheral view. Not only has the decision of the IEA to release 60 million barrels of oil to push crude prices down been brushed under the carpet, but Moody’s have announced that China’s local government debt may be 3.5 trillion yuan greater than expected, potentially threatening the credit ratings of the countries lenders.
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