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Market Comment 20th Aug 2012

It is becoming increasingly difficult to say what state the global economy is in as bad news seems to mix with good. 

Some indicators are indicating pockets of brightness whilst anecdotal evidence can give the opposite.On a personal basis the commuter car parks seem emptier than I can ever remember (even the ones close to the station are only two thirds full) but this might be the summer holiday effect coupled with the fact that the last weekend was probably the only bit of summer we are likely to get this year.  Although with the V-fest ending the trains were rather fuller with scantily clad young ladies than is normally the case!

The papers are full of calls to Gorgeous George to stimulate the economy via a cocktail of tax cuts and big infrastructure projects. It is difficult to argue against either of these proposals particularly if you feel that this should be the base camp of any conservative policy no matter what the economic environment.  For the last twenty five years whichever party has been in power the hard decisions have been ducked and put off to some future date.  We all know that building New Power Stations, Airports, Railway Lines and Roads is unpopular with wherever these things are sited and a whole raft of newt loving luddites can be guaranteed to leap into action but this is not a good enough reason to fudge one of the main reasons for being in power which is supposed to be managing the future wellbeing of the nation.  At the moment we have a bunch of politicians whose main remit appears to be ensuring that they get re-elected.   As Boris Johnson clearly stated it is time for government to stop ‘pussy footing around’ and actually make those ‘courageous’ decisions (as Yes Minister used to say).

Markets remain at the top end of the trading ranges (yawn) as they seem to have since before the dawn of time. The FTSE remains wedded to the mid 5800’s, the last five days trading range managed all of 65 points (5810-5875) and with the price now at 5847 I would not be exactly putting the house on it doing anything different today. There is almost no data out this morning that is likely to get investors excited in either direction and so ………. Roll on 16.30…. This said it must be warned that the longer we stay at the top of the range with no indication of a pull back then the greater the chance that investors will eventually get the nerve up to push us through the resistance and on towards 6000.

Equities will see an enormous slew of corporate announcements across the globe and so we can expect some sudden rallies and collapses within the component parts of the indices. The real problem with this is that (in these days of total lack of transparency) we have no real idea before the event of which is going to be which. In days past the companies used to ‘give a line’ to the analysts so that shocks (both good and bad) were less likely. But with the classic law of ‘unintended consequences’ the rules over inside information etc mean that investors must rely on a virtual toss of the coin if they wish to hold over corporate releases.

Now that summer is drawing to a close we are starting to get rumblings from Europe again as Germany endeavors to sound reasonable whilst at the same time talking tough.  A full six months into Greece’s austerity program sees them coming back and asking for another 2 years! And it now appears that it might not be one of the weak countries that gets shoved out but instead one of the strong that decides that enough is enough. Finland, who went through a banking and GDP crisis in the early 1990’s every bit as bad as the current PIGS problems and yet solved it with no help from anyone, is balking at having to pay to prop up far bigger countries in the south. We may well see the Finns decide that the whole thing is not worth it.

The Euro is still pegged back by the falling trend line which has held (roughly) for the last week. Though as mentioned on Friday the total lack of movement is seeing us drift sideways through the falling line. But of course this builds up another resistance level which is the top of the recent trading range around 1.2375/85. Support can be seen at 1.2280/85 from a short term rising trend and below here at  1.2245/55.

USD/JPY has bounced from the major support at 77.75/78.00 and is now back in no man’s land at 79.55. There is no doubt that the Yen is overvalued but the problem is that with the current deficit levels in Japan and the continued (just) trade surplus there is a natural buy side bias to the Yen. With the country finally slipping into negative trade position (especially with the closure of their nuclear power stations placing reliance in the future on imported oil and gas) those with a very long term investment horizon might be looking for a long term decline in the Yen. Although with a GDP/Debt level in excess of 200% any worries over sovereign ratings could quickly spiral.

Gold seems quite comfortable at current levels with 1625/30 proving hard to overcome but any price below 1600 running into solid buying. We are seeing true two way biz in the market at the moment with buyers (as they have done for years) slightly outweighing the bears. With these markets, as with most other, stuck in the ranges of the last six months it remains a range traders market.
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Market Comment 20th Aug 2012

It is becoming increasingly difficult to say what state the global economy is in as bad news seems to mix with good. 

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