The FTSE shrugged off the dire unemployment figures yesterday but the story is a sorry one for the UK economy.
Earlier in the year the private sector was creating jobs and growing but in the past few months things are much more different. The economy is flat lining, confidence is being shattered and the result is fewer firms willing to take on workers. Only just over a year ago the plans set out by the coalition to reduce the deficit by cutting back the state have come unstuck purely because there hasn’t been enough growth. Back then most of the economists around the world were expecting 2011 to be the year of the recovery and the UK would benefit from a weak pound by expanding its manufacturing and services sectors and export more goods to the continent, its biggest trading partner. Those economists didn’t bank on the fallout of the eurozone and the corresponding effect on growth so we are now staring down the barrel of a possible double dip.
If the eurozone continues to implode with bank liquidity drying up, the life blood of a growing economy, then the picture for the economy and jobs remains bleak. The UK is one of the most global of the global economies as we saw only recently a fall in orders from one of BAE’s biggest customers, the US, has led to thousands of jobs losses across the nation. Another giant US corporate Pfizer closed their UK research centre in Kent some months ago and these are just a few examples of how reliant we are on global businesses as well as our own organic companies.
There are few possible answers to really tackle the amount of joblessness as we’ve seen in the US which has been suffering from a high rate of unemployment for years now, but those measures that can be implemented need to be implemented fast in order to make it easier for firms to train and employ people.
As mentioned the FTSE doesn’t seem to care too much about the situation of UK employment and is preoccupied with what’s going on in the land of its biggest trading partner. The Slovaks are making noises about passing the vote on the EFSF and investors remain relatively optimistic that the sovereign debt and banking crisis can be averted. I use the word “relatively” when describing the optimism in the markets because we all know too well that this can be scuppered in an instant and we could eradicate the gains from recent days in no time.
For now though the FTSE seems content around the 5400 level and as yet hasn’t reversed back down again like we’ve seen in the past. If the market can maintain these highs then it could push to test beyond the resistance, but that’s all dependent on the elephant in the room.
The dollar was the whipping boy yesterday which has now pretty much eradicated the gains it has built up since the middle of September. This resulted in good strength for EUR/USD which surged back above 1.3700 and is now hovering around 1.3800 at the time of writing. The dollar weakness gave cable a boost too which almost hit 1.5800 but this morning is at 1.5735.
One of the biggest gainers against the greenback in the past few days has been the Aussie which has enjoyed an 8.5% rise from its recent lows around 0.9400. Now well back above parity the AUD/USD is at 1.0220 this morning testing a three week high.
Gold rallied on the back of the dollar weakness and even got to as high as 1690 before rejecting these dizzy heights and heading back to the mid 1670s. This morning we’re at 1674.0 and already we’ve seen fluctuations between 1680 and 1670. Slowly but surely the precious metal has been grinding higher since its sharp correction at the end of September in a bid to recapture the 1700 but the speed with which it has been getting there is uncharacteristic at when you look at the daily chart looks a little like a respite rally before the next leg down.