The clock is ticking and time is well and truly running out.
It is amazing to see that financial markets haven’t started to go into complete meltdown considering the ramifications of a default or downgrade to US debt and especially if credit ratings agencies wield their wands. So as we approach the week end it would seem that investors still expect some sort of deal, with at least as a minimum a rising of the debt ceiling so as to avoid gridlock in the credit markets.
That said the FTSE’s Herculean effort yesterday to recoup all its losses from the morning causing it to put in a half decent gain is being wiped out today. This morning fear is definitely starting to creep in and even the bond markets are getting a little nervous as yields start to head higher. Time really is pressing and next Tuesday is only a couple of days away if you take the week end out of the equation.
The week gone by has seen the market drift sideways, to slightly lower. With so much going on and so many variables to consider, it’s really hard to now say that equities are a good place to put your money, no matter how many people say that overall they look cheap.
UK consumer confidence released late last night has shown that despite the recent UK GDP numbers being better than what the market was expecting, the UK economy is not in the best of shape. When you are so reliant on the consumer, confidence is crucial and at the moment, as proved by this morning’s number (which came in at -30 well below expectations), there isn’t much of that around. When you consider how fragile things are the consumer doesn’t want to be bombarded by higher taxes, higher inflation and falling real wages. The little confidence bounce we saw as a result of bank holidays and Royal Weddings etc seems to well and truly fizzled out. We may be growing in some parts of the country, particularly the south east, but in the “periphery” things are tough with many parts of Britain effectively still in recession.
Hopefully we can end the week on a bit of a high as we get more economic data out later, the main highlight being US GDP, but don’t hold your breath as the numbers are hardly expected to sparkle. We then end the week with Chicago PMI and the University of Michigan’s final confidence reading for July which is expected to just tick up slightly. What the market really doesn’t need right now is some poor economic data this afternoon to compound the concerns for the bulls.
Currency markets are also in defensive mode this morning as the dollar benefits from continuation of the US ceiling crisis. The dollar index has bounced back above the 74.000 level to 74.525 this morning so major pairs such as EUR/USD and cable are a little weaker at the time of writing. The euro is lower by some 60 pips to 1.4270 and cable by 55 to 1.6320. This has allowed sterling to just gain the edge on the euro taking it to 1.1440.
The dollar strength has led to some mild weakness for gold this morning taking us to 1611 but still firmly above the 1600 level. It's white cousin silver has suffered slightly more profit taking bringing it back below $40 to 39.43 and bulls will be hoping that support at 39.00 and 38.30 will hold up.
Crude prices remain relatively resilient in the face of the sell off in equity markets with Brent trading at 117.50. After such a week of uncertainty investors will probably be looking forward to a break at the week end, but would rather be going into it with clarity over the US debt issue.