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Market Comment 23rd Nov 2011

Just as the Dow was closing last night it looked like US losses had been contained and at the time we were actually calling the FTSE to rise on the open, however the Asian equity markets have plunged to new lows and this has fed through to the start of European trade this morning. 

Today it’s poor economic data from China that’s causing the worries as a PMI number comes in below the 50 level indicating contraction and fuelling worries that China’s economy is set for a hard landing, and this comes just after yesterday’s revision downwards to US GDP growth.  Economies are slowing around the globe and with each passing week the threat of another global recession becomes all the more real.  No matter what politicians do at the moment they seem completely inept at being able to stop the confidence that’s being ebbed away.  We may find that 2012 is going to be a much tougher year than 2011 which will be remembered as the year that should have been a continuation of 2010’s recovery, however it will now be remembered as the year that a double dip became ever more likely.

In the run up to the credit crunch in 2007 and then the subsequent banking crisis the world had enjoyed good levels of growth, all of which had been built on credit as consumers, companies and of course countries gorged themselves on easy money in order to feed their unsustainable spending habits.  With consumers and companies, the life blood of the economy, reigning in their spending and unlikely to splash any cash soon, growth will continue to stall.  Revision downwards after revision downwards to GDP, caused primarily by the ongoing eurozone debt crisis, does not look like reversing and turning into revisions upwards and this too is having its effect on confidence.  No matter how much money you print or bailout funds you provide, you probably won’t avoid negative growth and rather than wasting more money that’ll will only have to be repaid by our children’s children, it is often best to let the natural course of events take it’s path.  Companies are already leaner and fitter than they ever been, however they are not ready to invest yet.  We will probably have to see things get a lot worse before they get better and confidence is restored.

This morning more PMI data is due for release from Germany and the EU.  Europe’s biggest economy Germany is no longer immune to the doom and gloom spelt out above and their services and manufacturing sectors are going into decline, with the manufacturing figure in particular sitting below the 50 level and set to get lower still.  Services are expected to remain above the 50 level, however don’t be surprised if we see this number dip below too. The EU number doesn’t look any better with new orders continuing their decline and exports suffering.  All in all not a pretty picture for the eurozone.

Also today we have the release of the Bank of England minutes where we will want to see what the chances are of further QE.  High is the basic answer.  Then later US data comes in the form of durable goods, personal income and spending, the weekly initial jobless claims (a day early ahead of Thanksgiving tomorrow) and then we end up with Michigan confidence.  No shortage of data then before North Americans go on holiday!

The risk aversion continues to depress the euro which is hovering around its recent lows. EUR/USD is at 1.3450 at the time of writing and traders will be focusing on the PMI numbers from Germany and the EU.  Short term things still look negative from a technical point of view and support is seen at 1.3425/00 and resistance at 1.3540, 1.3615.

Gold has done well to attract some buyers back having dipped below 1700 yesterday. Yesterday saw considerable weakness in the precious metal as it reached a low of around 1665, but overnight the Asians helped to push it back above 1700 and this morning we’re at 1702.  Things have also turned negative from a technical point of view for the yellow brick as rallies don’t last long and we can’t rule out another test of the 200 day moving average which currently sits around 1600.

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Market Comment 23rd Nov 2011

Just as the Dow was closing last night it looked like US losses had been contained and at the time we were actually calling the FTSE to rise on the open, however the Asian equity markets have plunged to new lows and this has fed through to the start of European trade this morning. 

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