3pc off yesterday, 2pc up on the open this morning leaves the FTSE looking a tad undecided just at the moment.
The companies reporting over the last few weeks have generally come in on the disappointing side but with stock prices so hammered already this is failing to have much of an impact on the index as a whole. The individual companies involved are taking major hits (Vodafone aside) with many being bashed by up to 20pc but even connected sector stock sometimes seem to take little note.
For all of my bearishness over the past year or so the fact that bad news is now not being acted on would seem to indicate that, for the moment, a base has been reached. Markets have a habit of building up for the end of the year as cash is found a home and with some very tempting targets out there it would not surprise if the same happened this time around. Having said this there are still some very smelly hurdles still to be jumped not least the ongoing liquidity crisis.
3mth money remains some 150 basis points above base rates as banks struggle to attract funds from the big cash holders. And here I do not mean Joe Public. A vast percentage of the world’s liquidity is held by a tiny percentage of its population and an even tinier number of institutions. It is these people (both individually and corporately) who must be tempted to risk their money with the banks. For all of the hullabaloo over the State stake building in the banking sector there is still no guarantee over personal deposits how many uber-wealthy individuals would risk their all on the credit-worthiness of RBS or HBOS?
Sainsbury have come in with disappointing turnover and profit numbers, although ‘disappointing’ seems hardly the word to use when the numbers are still well up on last time. The stock remains ‘in play’ due to the Middle East interest but without this would (even after falling over 50pc) be expensive versus its peers.
British Land have released numbers showing a trading profit but a massive asset write down. Unfortunately after the Taylor Wimpey private home numbers yesterday the commercial sector is not expected to be anything other than a wasteland and if the rest of the UK is anything like the City at the moment there also appears to be a huge slug of new capacity just about to land into the market. The Lord alone knows who is going to take it all up and this will almost certainly continue to drive revenue numbers lower.
Traders are long from last night lows in virtually every asset class with us and this is becoming a feature of intra-day trading. Every pull back is becoming a buying opportunity and every rally a selling one. Since the middle of October the FTSE has had six 500 point or more moves which is creating great short term play prospects. The entire high/low range for the whole of 2004, 2005 and 2006 was less than that of the last two months and it is this profit potential that is driving much of the dealing activity at the moment.
As mentioned in yesterday morning’s comment the continued weakness in Oil is playing havoc across the commodity exporting nations and Russia’s emergency measures announced late yesterday rather swiftly served to back up the arguments.
With memories of Russia’s effective wiping out of state debt back in 1998 very much to the fore the chances of anyone other than Supra-Nationals coming to their aid is slim. The same can be said for Venezuela, Argentina, Iran etc. Oil is now pushing to new traded lows for the year and (if anything) the outlook looks ever more painful. Not only this but Airlines and others who ‘hedged’ their fuel costs earlier this year at $100, $120 or even higher will now be asked for cash margin on these forward purchased contracts. In the current poor economic situation who would lend to an airline to make a margin call? This will probably lead to enforced liquidation (if indeed this has not already happened to some) which many well drive the markets much lower. This is not a prospect that leads to a happy prognosis on individual state security.
On the currency front traders are taking a breather on buying the dollar this morning and Cable has pulled back up to 1.5435-1.5438 but the charts still show strong trend momentum to the downside for Sterling (having lost 25pc since July it can hardly be expected to show anything else, of course). The lows of October at 1.5265 might seem to be a target for sellers but the precipitous nature of the falls is tempting in buyers looking for a bigger short term bounce. It is difficult to remain continuously negative on the ‘good old pound’ but the economic situation prevailing in UK plc does not exactly make me optimistic.
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