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Market Comment 3rd Aug 2012

So, markets continue to oscillate around a central point as bits of information gain confidence or dash hopes in almost equal measure.

It must be said that the falls seem to be getting weaker as institutional investors try to find somewhere to put the money under their control that will not only give some kind of return but will also look like a reasonable decision (even in hindsight) to their respective boards and peers.

The FTSE, for all of the bad news over the last few months (and there has been a lot), remains solidly within the top half of the trading range of the year to date and is still up from the 2011 closing price. Corporate results have thrown up some extremes in recent weeks/months with some companies missing targets by a mile whilst others (some in the oddest sectors) have pleased. It is tempting to consider that if the market can remain perky whilst we talk of the probability of stalled growth for the next few years (!) then what might happen if the news starts to turn?

The problem with this scenario is the obvious one. If euro zone woes accelerate and the fiscally prudent euro countries throw caution (and money) to the wind in propping up the weaker players and then this does not succeed we may end up with the worse of all worlds with massive sovereign debt problems across the landscape combined with imploding GDP numbers.

Rumours are being fanned by some sources in government that RBS may be nationalized and the 2bln loss announced this morning will not have helped. Government continues to be angry with the lack of lending to small and medium sized business but to be honest the banks are caught between about four rock and hard places. They are being urged to increase capital to secure their stability (which in reality means less lending), whilst the Basel agreements are being implemented (less capital available for lending), if they lend into the current economic environment (which is poor) and the end up with billions of pounds of bad debt the politicians will conveniently forget the urgings to extravagance and accuse them once again of casino banking and finally.. most banks are not instruments of the Government, they are companies in business to make money to pay their shareholders a return on their investment. If they are forced into lending for the sake of lending their share price will suffer which will have a knock on effect on their ability to issue extra capital or borrow at commercial rates I the market which again cuts into their ability to lend.

In good times of course all those factors work in the other direction bolstering and encouraging lending. Currently the banking world is running around in ever decreasing circles and politicians and central banks pouring ever more money into public sector debts (sovereign debt) is not helping.

Markets

The markets have bounced from the rather extreme events of yesterday where Mr Draghi managed his Greenspan moment of saying one positive thing followed almost immediately by a negative.

The FTSE is up at 5725 and looking comfortable but traders will be mindful of the solid resistance at 5730/35 especially as we have the non-farm payroll number at 1330 this afternoon. Good numbers (or at least not bad ones) may have traders thinking in terms of the next target of 5820/25 being the peak back in May when the markets made their abortive attempt to rally after the early April falls. On the down side there is quite a bit of volume support all the way down to 5600 and it would be quite a surprise if even bad numbers forced us all the way through this. There is short term support at 5700/05 and further support at 5670/75 and 5625/30.

The American markets are also on a slow grind higher with the S&P chart since Jun showing a series of higher highs and lower lows. Investors seem confident at the moment and it looks unlikely that today’s number would seriously dent this. But …you never know.

Currency markets are also pretty much moribund aside from the slow grind lower in the Euro. Sterling is stuck around the 1.54 – 1.58 range and it would take something quite extreme for traders to be looking for this to change. The Euro is virtually untradeable from a security point of view as sudden announcements make for sudden moves. A case of keeping your stops tight.

Gold is also stabalising around current prices with repeated attempts to get below 1530 and above 1630 all failing dismally. With the market now at 1595 it is tempting to toss a coin to guess the next direction. Our clients are buying heavily at the moment in anticipation of a bounce from yesterday.

Oil is the one area that looks to have defeated the bears with prices for Brent now up at 106.50 having hit 88.50 back in June. It is not clear why (with growth slowing) this should be the case but it a warning sign that possibly supply into winter might be under pressure.
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Market Comment 3rd Aug 2012

So, markets continue to oscillate around a central point as bits of information gain confidence or dash hopes in almost equal measure.

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