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Market Comment 15th Aug 2012

So, Standard Chartered have agreed a ‘payment’ to regulators of $340m in settlement of the US’s ever widening legal umbrella. 

Yet again a company operating within the law in its own country (the UK, which is hardly a rogue state) has fallen foul of a politically motivated attack on a foreign competitor.

The fact that this payment comes at a cost of some five to six billion of reduced asset value to pension and investment funds in the UK will be lost in the headlines.  The regulators and ombudsmen decisions of the last four to five years have been applauded loudly by newspapers and politicians across the globe but nobody seems to discuss the consequences. The Ombudsmans PPI rulings in the UK will cost banks some 4 to 5 billion pounds. But the hit on the share price and balance sheets is far, far higher than this. Giving a billion or so to a bunch of people who ‘claim’ to have been miss-sold a product sounds great until you realize that it has cost many multiples of this to our pension funds and reduced the capital of banks (just when we need them to lend) . Banker bashing is self defeating and as soon as regulators, politicians and Ombudsmen realise this, the better.

Benjamin Lawsky (the New York prosecutor) is probably glowing with his success. Wow, he just got $340m from a bank! But he has just made the US an even less attractive space to do business and has probably hastened the day when dollar clearing is performed outside of the USA’s jurisdiction. After all, if you claim to have the Global currency you can hardly complain if it has global clearing. 

As mentioned Standard Chartered have agreed a settlement with one of their accusers and so their share price is making a bounce but traders will be aware that (in the US) it is never a case of just one agreement covers all. There are layers of lawmakers all of whom will now want their slice of cake. So we would be wise keep the bubbly under wraps for a while longer.

Markets, yawn, made no move whatsoever yesterday.  After looking at the resistance at the top of the trading ranges several times, throughout the session, traders then proceeded to reject it.  Indeed the S&P made a spirited attempt at a break out after the sales data reaching 1412 but this was almost immediately stomped on by a wave of selling in light markets as dealers decided that discretion was the better part of valour. One of the problems about technical levels is that repeated failures can start to become sell fulfilling and, if investors begin to think that a high (or low for that matter) has been reached, then the enthusiasm to hold assets begins to wane driving prices in the opposite direction.

We are obviously not at this point at the moment but clients should be aware that repeated rejections of a level can swiftly result in a reversal.

The FTSE remains comfortably in the mid 5800’s with support at 5815/20 and 5785/90 and resistance at the recent highs around 5875/80. Volumes are incredibly light at the moment well down on last year’s liquidity numbers which were themselves historically very weak. Whilst this does not have an effect on valuations it does mean that any move can swiftly generate a momentum out of all proportion to the number of shares being traded.

On the currency front the major resistance mentioned yesterday at 1.7375/85 in the Euro held almost exactly with a high quote of 1.2385/86 giving technical traders a nice chance to prosper. I have to assume that quite a few clients read this comment as we saw substantial selling above the 70 mark. Most have now taking their gains and we have seen buying at around the current levels. There is some small support from 1.2315/25 but this is ‘light’ below here there is another support at 1.2285/95 and 1.2240/50.

For Sterling we are seeing a small sell off from the mid 1.57’s which was reached yesterday morning but there seems to be little other than profit taking behind it. Prices are currently at 1.5665 and there is minor support just below here at 1.5650/60and more solid at 1.5615/25. For the last few months we had been bumbling around between (approximately) 1.5450 and 1.5750 and it is difficult to see why this should change.

Gold attempted another dip dropping from 1615 down to 1590 in a few short minutes (as feared in th last few comments). As with the previous day the fall was followed by a 50% bounce but prices are now dipping again. There is support at 1586/90 but if we have repeat of the last few rallies/falls bulls must be wary of a retracement back to under 1560.

Over the last month or so Oil has been quietly moving higher without getting any headlines or comment. Brent now stands at 111.80 which is 23 bucks up from the low in Jun. With GDP numbers apparently stalling it would appear that there is another story in the back ground as price should not be edging higher on an almost daily basis. I fear that the answer may lie in supply. We may be finding that the oil nations are quietly cutting back on production to maintain a $100 (plus) price.
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Market Comment 15th Aug 2012

So, Standard Chartered have agreed a ‘payment’ to regulators of $340m in settlement of the US’s ever widening legal umbrella. 

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