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Market Comment 9th July 2012

Mixed messages are abounding within the markets as we continue to see the FTSE dither around and just below the 5700 level.

Bash a banker is rife at the moment and whilst the animosity towards them is understandable we have to appreciate that their jobs are being made more and more difficult. On the one hand they are being continually told to recapitalise more by regulators and the likes of the IMF as they fear that UK banks will suffer badly if the global economy and particularly the eurozone turn ugly. On the other hand you have politicians and the public berating them for not lending enough to assist in getting the economy out of the doldrums. The pressure is telling and so much so that now our best bankers are having to resign. As the Libor issue continues it might not be long before other heads roll and so senior executives at our banks must be very nervous.

The main problem banks are facing at the moment is a struggling UK economy and a global one that’s seeing the power houses of growth starting to falter. Why would a bank, especially one that is majority owned by the British taxpayer, want to risk its precious capital by lending to a business or individual that in the current climate is unlikely to give the money back? This unfortunately is exactly how the vicious circle of a recession comes about leading to a lack of confidence that stifles business investment and banks are reluctant to give more credit and so the problem goes on.

As eluded to above it’s not just the UK economy that’s suffering but the global power houses of the US and China are slowing down more than many had anticipated. Last week’s non farm payroll came in lower than expected once again and there have now been too many instances of this in 2012. China’s seeing inflation dip and the old soft or hard landing argument is being batted around again. All eyes will be on China’s GDP figures later this week to see just how things are going on that front.

As mentioned the FTSE languishes below 5700 and earlier this morning we were calling the index to open higher by some 10 points but gradually we’ve been dipping lower and currently sit just in the red at 5650. Clients who’ve been selling around the 5700 level have been rewarded by the index’s inability to get above the resistance that we’ve continually cited around 5700/25 and if the US markets are not going to spur investors into buying action then there’s not much else that one can see what will.

Apart from the Chinese inflation data we’ve seen this morning there’s little else to report about on the economic data front. In fact the rest of the week is relatively quiet on that front following a week that saw lots of data, most of which was bad!

The euro continues to suffer badly and approaches a fresh two year low against the dollar. Bears will be targeting the big figure at 1.2000 and with the way things seem to be trending for the single currency it may not be long before we see a test of that level. There’s very little positive news for the euro at the moment and the prospect of further interest rate cuts from the ECB is only adding to the bears argument. At the time of writing EUR/USD is at 1.2295.

Gold is feeling a little bit of malaise following last week’s NFP, which was worse than expected, but not bad enough to get investors rushing back into the precious metal on the back of prospects for more stimulus from the Fed. The FOMC minutes this Wednesday will be closely watched by gold traders for any signs that stimulus is on the cards.

Crude dipped back below $100 a barrel and is just seeing a small bid attraction as it climbs 50 cents to 98.75. The bounce in the last couple of weeks will be closely watched to see if this is a break of the recent down trend, or if it presents another bearish opportunity to get short of the black stuff.

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Market Comment 9th July 2012

Mixed messages are abounding within the markets as we continue to see the FTSE dither around and just below the 5700 level.

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