The FTSE has opened much higher than we expected and I have to admit myself that I thought a call of 60 points lower in the early hours of the morning, just on the back of the moves in Asian markets seemed a little far fetched.
The index has shrugged off the negative mood in Asia and started a little perkier this morning up some 20 points and this little bounce could conceivably carry on especially when US investors return to their desks from their extended weekend to see that Europe has driven their Dow futures down over 200 points and the S & P over 25 points. Sometimes US traders get back to their desks in such a situation and go “hey, why is the market so much lower” and give us a bit of an uplift.
However, the overall picture remains bleak with yesterday’s trading session riddled with bad news from the services sector and a resurgence in eurozone debt crisis woes. When you’ve got the head of one of Europe’s biggest banks saying that the situation now is more worrying than the 2008 crisis, then you’ve got to be concerned. Back then banks were bailed out by governments, but now it’s the governments that are in trouble and there isn’t anyone who can bail them out.
As mentioned the services data across Europe was poor in particular for the UK, which doesn’t bode well for this quarter’s GDP number. The PMI numbers are often intrinsically linked to business and consumer confidence which as we all know has been tumbling recently. If a business or consumer is worried about the months ahead then they will not look to invest, expand or spend and so this is why we’ve seen service activity dip along with confidence. This afternoon the US releases its services data which is due to come in just above the crucial 50 level at 51.3, but because last week’s consumer confidence came in so poorly this ISM non-manufacturing number could possibly disappoint to the downside and come in below 50.
The euro continued to have a rough time yesterday, in particular falling against the dollar and Swiss franc as traders sought after the safer currencies. Naturally the euro took a beating in line with the equity sell off which were hit hard yesterday after more worries over the euro zone debt situation. Against the dollar, the single currency has fallen consistently for five days and it looks like this morning we are seeing a bit of a bear squeeze. Equities are up and the euro has bounced around 60 pips to 1.4109 breaking through its resistance level. Although this could be a positive signal, it is capped by a medium term declining trend line, so traders should be cautious of a reversal.
Investors yesterday wanted to find a protective cover to hide under as fears of a second recession splattered the markets. This cover appeared in the form of the yellow metal and traders grouped under the hedging favourite as equity markets dumped and safety havens rallied. At the end of the session, the precious metal had gained 16.2 dollars to 1899.6, opening up the way for an attempt at breaking the August 22nd high, which this morning was no problem, as market participants witnessed gold touch a new all time high at 1921.
For oil, the Labor Day holiday in the US meant extremely thin trading volumes, and the black gold extended losses on the rear of concerns over the global economy slipping back into a black hole and therefore denting the demand for the commodity. The other factors to look at were support for German Chancellor Angela Merkel weakening, which spurs on doubt about the single currency survival and also the tropical storm Lee – which has been supporting crude prices of late – starting to lessen.