Londoners go to the polls today and across many parts of the country local elections take place. Whilst the mayor’s office is expected to remain the same colour (and I hear that some bookies have already paid out on him winning) swathes of red are likely to cover many blue councils as voters vent their frustrations of what’s been a terrible few weeks for the Tories.
Political gaffs and a weak economy are the main reasons for the sudden and sharp mistrust that voters now seem to have for the Conservatives and the surprise is the sheer speed with which it has happened. Rather like a stock market crash their popularity has completely fallen off a cliff when it wasn’t all that long ago that the majority still seemed to be on side of their economic plans. But interestingly voters are still not willing to give their backing to any of the alternatives and so it will be interesting to see on Friday just how far the discontent runs.
The government has been consistent in using all the usual excuses at their disposal and have been spending their time placing the blame for the stagnant recovery at the feet of the eurozone, being back in recession, as well as China and the US slowing down. Whilst these factors certainly don’t help and are partially to blame, fault also lies with the Coalition that has been less than helpful in making the sort of changes required to boost our economy. Our labour market needs to be more flexible and we need proper tax reduction that will spur on growth.
Once again the FTSE failed at its recent highs and just when it looked like it had managed a break through before continuing the rally higher, it reversed its gains. The last few weeks have seen the index stuck in a bit of a range between 5650 and 5800, and this morning the FTSE is knocking on the door of 5800 having jumped on the open after what looked to be a bit of a false breakout. The momentum since early to mid April has been in favour of the bulls who still seem to have the upper hand so we can’t discount the prospect of a possible test of the 2012 highs some point soon, especially if the US indices remain in bullish mode. The near term resistance remains 5800/20 which we’re unlikely to overcome if we see poor figures from the US like the ADP number we saw yesterday, so the NFP has to be rather good in order to see a break to the upside.
Economic data today comes in the form of the UK services PMI data and then later on this afternoon the US releases its non-manufacturing number too. Both are expected to decline slightly but remain above the 50.0 level indicating expansion for the sectors. Any surprise to the upside like Tuesday’s manufacturing numbers in the US might be a catalyst for another test of the recent highs in equity markets. Between these numbers we get the ECB rate decision where little action is expected on either the interest rate or stimulus front, but we might see a rather more bearish outlook, or at least surprise, at the weakness of the recent economic data in the eurozone.
The euro area’s manufacturing tumbled to a level last seen in August 2009 raising fresh concerns about the European double dip recession. Those concerns were also heightened by a rise in German unemployment during April, triggering a nosedive in the euro against the US dollar to 1.3153, 84 pips down for the day. The ECB will release a statement later on today following its interest rate meeting, expected to be left at 1%.
Bad news on the US employment sector spurred demand for the greenback which in turn put downward pressure on dollar denominated gold prices. A fresh bout of quantitative easing which supported the yellow metal last week has now become unclear. As a result gold prices took a hit yesterday, losing $9.2 to $1653.60 and is still under pressure this early morning at 1646.
The US Department of Energy released its weekly oil inventories report yesterday showing a built of 2.8 million barrels in crude stocks, more than analysts’ estimate for 2.3 million barrels increase. Arguably more important was that overall level of crude inventories reaching the highest mark since Sep 1990 thus sending the WTI crude prices 76 cents down to $105.22. The gasoline stocks dropped 2 million barrels versus consensus of 0.9 million barrels, possibly limiting the slump in prices.