Barclays has come in with substantially worse numbers than expected but still the FTSE is being called up this morning on the back of the small rally in the US on Friday and the Far East this morning.
That being said the Dow Future was looking quite a bit perkier a few hours ago and the announcement has taken some of the shine off the overnight move. This doesn’t appear to have hurt the stock price as Barclays is trading 7p up so far (one wonders where we would be if the bank had made the 2.2 bln expected rather than the 1.9 announced).
Barclays Capital continues to go great guns with profits increasing from 524m to 1.05 billion showing that the investment bank survivors are doing very nicely indeed in the reduced competitive environment. Unfortunately the domestic side was not quite so perky as profits slumped from 690m to 268m reflecting increasing loan losses and tightening margins as banks pay up for deposits (even though rates are at 0.5pc it is quite easy to get more than 3.5pc for your dosh). The sight of politicians bleating at banks to lower mortgage rates to closer to the base rate must be galling in the extreme when they cannot borrow at anything even close to this level.
Mind you, on the lending to business front, the throwing up of the hands from bank officials claiming that it is not their fault that businesses are not borrowing and that they have tons of money just crying out to be accessed is a tad rich. I know, from very recent personal experience, trying to borrow against a company with no debt, substantial cash funds and massively positive cash flow we have been quoted at 20pc (!!?) plus an equity stake. No wonder they have few takers.
The worry is that the domestic numbers from Barclays are a better indication of UK growth scenario than the investment arm’s contribution. The obvious conclusion is that we have some way to go before the growth becomes anything more than anaemic.
As you will all have read the commodity boom continues to wind its way through the markets with copper leading the way. The rumour that the Chinese are cornering much of the production will not go away but, in reality this seems a tad unlikely. Futures contracts have an annoying habit of ‘expiring’ forcing buyers to either take delivery or roll to the next contract. If there is no real underlying requirement for the product then massive buying for future requirements can come to a very sticky end indeed (as several Chinese banks discovered last year with huge commodity induced losses). If growth continues to be weak, and consumer confidence is slipping once again, there is a good chance that the current spike in metals is just that, a spike. Punters would be advised to play the commodities very carefully indeed as the current shifts in prices from Oil to Gold and on to Copper are getting very dramatic.
The pound is busily recovering more lost ground versus the dollar as traders probe the highs since the fall out last year. There is some resistance right at the current levels of 1.6750 (being the same high level back in June) and we are seeing some tentative short building from some dealers. The dollar is losing quite a bit of impetus as the Obama administration appears to be already running into the mire. In reality the new broom promoting ‘change’ (whatever that means) is finding that delivering results is rather more difficult than talking about them. The big buyers of US debt continue to worry about the long term attitude of the US administration towards the Greenback and as mentioned many times over the last few months there is a strong suspicion that they are running a covert weak dollar strategy. As the Japanese found to their dismay it was all very well making huge sums of money exporting to the West but, unless the revenue is diluted into local currency assets (therefore driving up the Yen, Yuan and decreasing future margins) then foreign currency assets become a Damocles sword hanging over balance sheets. A falling dollar can quite literally wipe out years of accrued profits.
No tears in the US, of course, if this happens as they feel that the Far East has kept the value of their local currencies artificially low for many years but as the States needs to sell vast swathes of debt in the coming months and years it is not wise to upset the possible purchasers too much.
Oil continues to rally up towards the recent highs with 72.80 in Brent looking to be a solid barrier. The 10 day rally in prices through the middle to late July mirrored the rise in the equity markets as dealers quite naturally assumed that appreciating expectations for the economy should equate with a rising demand for the black stuff. Coupled with OPEC’s repeated desire for prices to be above 75 bucks this has made for pretty much one way traffic. On the other hand it must be remembered that we are talking about Oil demand now (or at least in the very near future) whereas the equity markets are trying to look rather further forward. The way looks to be up at the moment but bulls should be wary or disappointment and be quick to reverse if weakness returns.
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