Market Comment 20th Mar 2012

The low volumes and sideway movement of European equity markets over the last few days is starting to bring out the bears in our clients. 

They’ve been staunch sellers of the FTSE each time it has risen recently and so far some of them are being rewarded as the index simply cannot seem to break through to new highs above and beyond the resistance seen in the mid-5900s.

Whilst other indices have pushed on through to new highs the FTSE has remained stubborn in refraining from taking on the 6000 level and remains restrained by the mining sector.  The real concern for the bulls at the moment is that the recent rally may have just gone too far and in order for the markets to carry on higher, first they need to have a decent move lower.  It’s hard for people to jump in at these levels if they haven’t already done so having missed out on the rally thus far, and there are questions as to exactly where the next catalyst for more buying is going to come from.  Whilst the economic data overall has surprised to the upside, there are doubts as to how sustainable it can all be.  The impressive jobs data in the US is yet to really translate into impressive growth figures and so the doubters are saying that we might be in a similar position to a year ago when 2011 was expected to be the year of the continuation of the recovery, only for that never to materialise.

So the FTSE is a little softer this morning and is some 35 points in the red at 5928.  Near term support is seen around 5915, 5895 and 5860 where the resistance is really all about the 6000 level.  The longer this period of consolidation continues then the more the rally is thrown into doubt.

The highlight this morning from a UK perspective will be the inflation data which is due to show another decline having peaked above 5% in the latter part of last year.  Consumers are breathing a sigh of relief as it is now normalising and the effect of last year’s VAT hiking dropping out of the numbers means that today should show yet another fall from 3.6% to 3.3% year on year.  This will be the first release of the new basket of products that now includes an iPad, which shows just how much Apple is a part of almost everyone’s lives.

The euro had another surge yesterday against the dollar, jumping as high as 1.3265 on news that the process of payments on Greek credit default swaps has become clearer. However, the single currency's three day winning streak looks as though it could have a bit of a pull back amid concerns that China's steel production is slowing.  It looks as though this morning that traders are maybe cutting long positions in the euro and moving into the safer dollar as a result of the slowdown in the Chinese economy.  The EUR/USD pair is currently trading at 1.3210 but has broken through a rising trend line, which could signal further weakness.

Albeit a quiet session across the markets, gold still managed to gain some ground helped by a weakening greenback.  Another factor could have been holders of the yellow brick squaring off positions after the steep drop from the high of 1790.0 seen back on February 29th.  This morning’s trade has shown market participants how quickly the tables can turn though, and the gain of 5.2 dollars to 1664.4 in yesterdays session has been eradicated, with the precious metal sitting down at 1648.2.

Energy traders were given a boost of optimism over the weekend when the International Monetary Fund’s head Christine Lagarde voiced her opinion on the global economy, stating that she believed it was now past the worst point of the current crisis.  On the back of this, long positions in the market were increased as energy demand should closely follow the world's economic recovery.  At time of writing, the rally has lost steam and Brent trades down at 124.60.

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Market Comment 20th Mar 2012

The low volumes and sideway movement of European equity markets over the last few days is starting to bring out the bears in our clients. 

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