Volatility has really dominated markets in recent days and once again we saw big moves in both directions for global equity markets.
The FTSE see-sawed in and out of losses and gains but got the boost the bulls wanted to see from Ben Bernanke who hinted that QE3 is becoming more and more likely. He couldn’t really have been clearer that further stimulus is an option and as a result the bulls won the day just when they were looking in the jaws of defeat. The biggest winner though was gold which hit another all time high. It was a one way bet the moment it became apparent and gold bulls will say that it was inevitable. Clients continue to enjoy riding the wave of the yellow metal as it surges higher and the dollar gets pummelled.
After the “Bernanke rally” probably the most significant event for the market was the surprise Chinese industrial production and GDP data. This ticked higher and where in the past it may have led to equity market weakness over concern that they may need to tighten further in order to bring their economy off the boil, it was a relief to know that the current tightening cycle is not snuffling the boom times out. China comes to grow at well over 9% and this is crucial for the overall global economy to maintain its course. We know that things are slowing in Asia, but with any luck it’s in an orderly fashion rather than a bubble bursting which as we all know causes serious problems for the financial markets!
There’s no doubting that this week will be hard to forget, not only for the extraordinary movements in financial markets, the downgrades to PIIGS and fear of contagion, but the fiasco over New Corp, BSkyB and telephone hacking. Now that there seems to be a bit of clear water from a political standpoint and News Corp has withdrawn its bid for Sky we can look at the stock without the “noise” around it. At seven quid and after having had a third wiped off its value at one point, we had clients buying the stock around £7 and below in the hope of picking a bargain. It will be interesting to see if they are proved right.
This morning markets continue to experience volatility as investors worry about US debt this time. The battle between Republicans and Democrats is reaching fever pitch as they squabble over how to deal with the mountain of US debt and Obama even threw his toys out of the pram by walking out of last night’s talks. There’s no question that the debt ceiling must be raised, otherwise the US will default, an almost unthinkable situation for the markets. So at the time of writing the FTSE is softer by some 50 points to the mid 5800s, actually higher than we had previously thought.
So not only is the US the focus from a debt ceiling point of view, but it will be today on the economic data front, starting with retail sales. With oil prices having come off their highs this has in turn led to slightly lower petrol prices and so US consumers are expected to have done a little bit of shopping in June. Retail sales (this is the core sales, so stripping out cars and petrol) are due to rise a little. At the same time the weekly initial jobless claims are due, which are expected to fall and also PPI data is released, which along with the softer oil prices could decline a little. All these figures, if they come out as expected, have the possibility of producing a concoction that might be well received by the market.
The dollar has taken the place of the euro as the wiping boy this morning, weaker overall but not nearly as bad as yesterday’s hefty losses. EUR/USD has already seen some decent movement this morning having been higher almost up to 1.4300, but a small reversal to 1.4200 has already taken place this morning. Support is seen at 1.4110 and 1.4050/3975 meanwhile resistance is seen quite a bit higher at 1.4285/375.
Cable too has come off highs from earlier this morning almost reaching 1.6200 and is at 1.6125. Resistance is seen at 1.620/25/80 and support at 1.6075/30/00.
As mentioned the yellow metal is doing very well thank you very much and is being further supported by Moody’s threatening to downgrade US debt. At 1585 this morning clients are happy to remain long so must be expecting even higher prices to come.
Click here to go to Capital Spreads
Simon Denham is Director of London Capital Group and Capital Spreads. We do not endorse the information and analysis available in this comment and it is provided purely for information purposes only and is delivered as a personal view by the writer. Under no circumstances is the information in this comment to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. The investments referred to herein may not be suitable investments for all persons accessing this page. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. We accept no liability whatsoever for any direct or consequential loss arising from use of the information on this web page. Please see our Terms and Conditions.