There’s something about the markets at the moment that isn’t allowing them to hold onto gains.
Apart from the obvious there are a number of headwinds that investors face at the moment and yesterday a couple remerged after having taken a back seat for a while. Firstly, Greece was downgraded once again by Moody’s (as if the rating agencies hadn’t done enough downgrading for the poor old Greeks) but actually this wasn’t the real reason for the sell off late on in yesterday’s session as China’s Premier warned against tackling inflation and their property boom in order to prevent the bubble from growing further.
Inflation has been another of the themes of 2011 and as oil prices remain high the pressure will filter through to the front line. Consumers, who are already being hit by higher prices for fuel, clothing and other energy bills, will see their disposable income diminish even further. My wife was even moaning at the weekend that only £50 only got to just over half the tank. I suppose that meant less for her to fritter away in the shops, wonderful – a bit of deflation!
The rise in prices was confined to the soft commodities earlier in the year, but now with the focus on oil, this affects so many of us like another tax burden. The threat to global growth is real and any further increase in the price of oil, say another ten, twenty or thirty dollars could knock at least one if not two percentage points off global GDP.
A coordinated approach by OPEC to raise output has brought the bears out in the oil markets with crude prices falling some two bucks. This has given Asian markets a bit of a lift this morning and European indices have opened just slight on the side of the angels. This is a decent recovery already as overnight we were calling the FTSE to open lower by some 40 points. Ever since the Egypt and Libya situations kicked off, the movements in the markets in the past few weeks have been very unpredictable. Both rallies and dips have been very short lived and we saw this again yesterday with the move back below 6000. Today it will be interesting whether we can move on higher or if we’ll give back more ground, but it’s anyone’s guess as to what will actually happen!
There’s little in the way of economic data today which as mentioned yesterday is thin on the ground this week apart from the BOE rate decision on Thursday. We did have some RICS house price data earlier which showed that things outside London remain tough for the housing market. With the effect of government spending cuts not fully felt yet it could be a long time yet that the regions beyond London and the South East see any uplift in activity.
FX markets suffered a bout of risk aversion late on in yesterday’s session with the dollar benefiting against its counterparts. This morning there’s little improvement on that front with things on the whole flat to slightly dollar favourable. EUR/USD has dipped a little to 1.3950 where there’s some support expected but a move lower might open up 1.3885 and 1.3835. To the upside the 1.4015 to 1.4040 area is seen as resistance and then 1.4100.
Cable is flat to lower at around 1.6180 so bears will be targeting 1.6150 and 1.6120 whereas the bulls will hope for a test of near term resistance seen around 1.6240, which was previously support and the 1.6300 area.
Gold also suffered from the return to the dollar yesterday and swiftly rejected its highs after hitting another record above 1440. The near term upward trend line should provide some help bulls around 1422/25 and below here 1417 and 1411 are seen as support. Resistance should come in at 1436 and of course he recent highs at 1445.
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