So as August draws to a close few will look back on it fondly but remember it for a plethora of bad news and social unrest.
This month is set to have the third biggest trading range for the FTSE 100 on record which indicates just how volatile things have been.
We all know now that global growth is going to be slower this year and next, beyond that who knows, but the knock-on effect it is having on consumer and business confidence is worrisome. Yesterday’s confidence data from both the US and EU plunged in line with the recent stock market falls and even this morning an important UK measure showed a sharp decline to it's lowest levels since April. Confidence is key to the recovery as businesses and individuals that are concerned about growth prospects will simply not invest the cash they have sitting waiting to be invested. Consumers are already cash strapped due to falling real earnings and higher inflation, so how can they be confident about the next six months or so? The consumer makes up a major part of the economy, contributing some 70% to it, so a further slow down from the low levels we already see will not help things. Even businesses which conversely are quite cash rich at the moment are keeping money aside for a rainy day as opposed to investing it and again why would you look to expand now when you know that the overall economy is slowing.
Last night’s FOMC minutes did little to offer more than what the Fed’s Chairman said last week at Jackson Hole and so investors now look to the next FOMC meeting which is in the latter half of September.
Despite all the doom and gloom the FTSE is holding up well and has already made an attempt at getting over the 5300 level. The markets have had a massive shake out and corrected to the downside due to the revisions downwards to global growth however any bad economic data now seems to be followed by equity market strength. This indicates that investors are pinning their hopes on another bout of QE from the Fed which in turn is boosting gold prices. At the time of writing the FTSE is at 5295 having achieved a close above last week’s high which is quite encouraging for the bulls in the short term. Their next targets will be 5360 and 5390 which might even suggest the rout is over if we close above the higher target.
On the economic data front today we see the non farm payroll’s prelude in the form of ADP employment data. It’s hard to see the number coming in as high as the expected 100k due to the terrible data that’s been released recently so don’t be surprised if things come in worse than 100k, but as mentioned this might even cause markets to rally!
Currency markets are flat this morning on the whole with a smidgen of dollar weakness. The euro recouped losses following the poor EU confidence number in the morning after the US confidence data disappointed and just now EUR/USD has surged back above the 1.4400 level to 1.4460 following better than expected German unemployment data. Over the near term resistance is seen at 1.4475 and then 1.4525/50 with support expected at 1.4380/50 and then 1.4290.
Gold as mentioned was boosted by the bad data and we can probably expect further strength from the yellow metal if the data remains poor. A little bit of profit taking this morning brings us to 1829 so near term support and resistance are seen at 1810, 1770/42 and 1855/71/95 respectively.