Well the markets didn’t get what they wanted from our friend Ben Bernanke across the pond which left markets slightly disappointed as he gave little indication of anything on the stimulus front to come anytime soon.
Many would have thought that the majority of what he said was nothing more than a “copy and paste” of the most recent FOMC minutes as his stance remained unchanged. The overall picture was a gloomy one which has been the case for sometime now but the more doom and gloom that is released in economic figures and talked up within the market, the more investors become optimistic that they will see the Fed start its next round of unconventional stimulus. In a massive tug of war the bulls are holding onto their equity positions in the hope of such an announcement whereas the bears are looking at the current picture and remain sceptical that anything can be done to prevent the global economy from being dragged into another recession.
At least there was finally some decent news from corporate America last night as stunning earnings reports from Goldman Sachs and Coca-Cola gave bulls the impetus to brush aside Bernanke’s earlier comments. The Dow Jones managed to climb out of negative territory to finish 102 points at 12,806. The gains were all the more impressive as the index had been as low 12,645 after Ben Bernanke disappointed markets by failing to roll out any further monetary stimulus.
This rally from the lows by the Dow has bought a few buyers out in Europe so far this morning as the FTSE is flat to up around 5635 at the time of writing. The ranges have remained incredibly narrow of recent making ideal trading conditions for clients as they pick the peaks and troughs and don’t have to wait too long if they market gone against them, for it to turn around in their favour again. The earlier volatility in Spring is long gone and with a “summer” full of sporting events ahead there’s little prospect of anything changing much on that front. Investors are likely to be either away or watching their televisions with only half an eye on the markets.
On the economic data front a highlight of today will be the UK unemployment due to show unemployment remains at 8.2% but crucially people will want to see whether the good data from the beginning of the year, which showed unemployment falling, is a trend that’s set to continue. Growth maybe flat lining but jobs are being created and for now the private sector is just about picking up the slack from the public sector job losses.
The euro managed to eke out small gains yesterday after also having a sharp reversal of sentiment. Bernanke’s lack of enthusiasm for QE3 saw the dollar strengthen, pushing the euro as low as 1.2188, just avoiding making a test of the 2 year low at 1.2162. The low at 1.2162 looks to be turning into a solid support level and traders will be looking for it to at least consolidate in this region before testing the resistances above. After yesterday’s see-saw session this morning EUR/USD is at 1.2280. Near term support and resistance is seen at 1.2215, 1.2175 and 1.2315, 1.2335 respectively.
Gold declined yesterday as the lack of enthusiasm for another round of quantitative easing from Ben Bernanke sapped the reason to hold gold it as an inflation hedge. Spot gold shed $6.5 to close out Tuesday at $1582.3 and is already edging lower in Asian trade.
Despite the general dollar strengthening yesterday, oil prices also rose as tensions between the US and Iran continues to escalate. Crude oil for August delivery gained $0.79 to settle at $89.22 as fears that Iran’s refusal to halt its nuclear weapons development program could develop into a full blown conflict disrupts supplies.