Investors have been left disappointed by a lack of clarity from the US’s Federal Reserve last night who continue to play the waiting game with an election not far away they cannot be seen to be partisan in anyway.
Whilst many hopes were dashed that stimulus is unlikely to be anytime soon, considering the lack of fire power left in the Fed’s arsenal, they can’t just push the QE button again purely because the economy is dipping. They have at least been clear that they will act should the economic conditions dictate and with the way things are going expectations are still for something to happen later this year. So whilst the eurozone continues to suffer its own problems and China’s starting to wobble across the pond the US economy is also seeing confidence slowly being eroded as demand from its biggest customers is falling and thus the labour market, not in a perilous position yet, is faltering.
Back over this side of the Atlantic the next chapter of the eurozone crisis is unfolding as Spain takes its bitter medicine by implementing austerity measures and reforms that are leading to social unrest. The last thing Spanish voters want to see is their country going down the route of Greece where all they can see is years of recession ahead and no light at the end of the tunnel. Unfortunately for these countries that have been so profligate in the past, many of the reforms are necessary to make their labour markets more competitive and productive as opposed to relying so heavily on the state as many sectors do. It’s a painful way to pay for the mismanagement of the past and full recovery is years down the line. Properties in Spain in particular remain completely empty and where villas were 300k a couple of years ago they are barely even half that today.
Needless to say the Dow didn’t attract many buyers last night as a result of the FOMC minutes and it shed 48 points yesterday to close at 12,604. Its recent run higher from the beginning of June to the 13,000 level has not lasted long and this remains the major resistance hurdle for the index. Already the futures are pointing to a negative start for the index later this afternoon and the bears will be targeting support around 12,450.
The FTSE is in sell off mode too this morning down some 40 points to 5620 which is the near term support and so the bears are testing the bulls’ resilience. Again economic data is a little thin on the ground today and all eyes are on the Chinese GDP data due to be released overnight.
The EUR/USD made another new two year low at 1.2212 following the FOMC minutes as it failed to deliver any announcements of QE3. With the single currency still mired in a debt crisis and the dollar buoyed by the lack of a fresh round of printing, it looks as though the bears are still firmly in control and another 2 year low during today’s session is highly probable. At the time of writing the bears continue to keep the bulls at bay with EUR/USD at 1.2220.
The weakness of the euro has given sterling a boost much to the annoyance of UK exporters, but the pound touched 1.2700 against the euro yesterday, a level not seen for three and a half years. Following a doji candlestick formation on the daily chart the sellers are pushing sterling back and we’re at 1.2650 this morning.
Spot gold treaded water yesterday as early gains made in anticipation of fresh money printing where pared as the FOMC minutes showed the Fed is likely to hold fire on starting up the presses for now. The bearish sentiment has followed into today as the yellow brick trades at 1565 at the time of writing.
Crude oil gained yesterday as inventory data showed a significantly larger drop than expected. Data showed that inventories slumped by 4.7 million barrels last week against an expectation of a drop of only 1.5 million barrels. Brent made it back above $100 a barrel however it hasn’t been able to hold onto that level and is at 99.50 this morning.