It’s amazing what a little bit of a stock market rally and some decent weather can do for confidence. Belief that we are at the bottom of the current downturn, that house price falls are at an end and we are on the road to recovery leads us all to feel more optimistic about the future. Yesterday’s surprise jump in US consumer confidence took the market by surprise and after the figures came out everyone had forgotten about the North Korean missile test. It’s hard to believe the figures in the face of what other data is still being released. Confidence data is based on how we perceive jobs and wage prospects and therefore how we feel about our spending power. The figure may have been an anomaly when you take unemployment into consideration, but on the plus side there are continuing indications that the US housing market has bottomed. The falls in some areas don’t warrant thinking about as home owners have seen prices fall to the levels they were in the mid 1990s, but just as rising markets stop rallying, falling markets eventually stop going down. A report yesterday showed that once again the pace of decline in house prices was slowing. Today we get more housing data from the US with the release of existing home sales and this morning here in the UK we see some mortgage approval data. For the UK and US, house prices play a major part of how confident we feel about the future and if yesterday’s confidence figure isn’t a one off, then the consumer which is such a major key component of the economy, may also assist in dragging us out of recession.
The Dow and S&P last night surged higher and stayed at the highs for the remainder of the session (rather boringly from a day trader’s perspective) and the next test for indices is if they can maintain momentum to test the recent highs. The FTSE is better off this morning, but only by a few points rather as if we’re waiting for further direction from US indices, hence the rather US focus this morning. Equities are broadly flat and the losers are mainly those that have just gone ex-div, rather than any fundamental reason for a decline. Financials make up the risers and bank stocks are in particular being very heavily traded this morning. For the FTSE 4500 to 4530 remains the big resistance level after once again bouncing off 4300. In the Dow resistance is seen as has as 8770 and this morning US futures are quite perky as we’re calling the index to open 27 points higher at 8500.
Sterling recovered from early loses against the dollar yesterday to continue its upward move and this morning we’ve breached the 1.6000 level but sitting just below it at the time of writing. All bullish economic data is serving as a catalyst for sterling at the moment as investors believe the sell off in the latter part of 2008 and early 2009 was over done. Anything that shows more signs of green shoots is proving negative for the dollar as investors who rushed to the “safe haven” in the wake of the credit crunch unwind their positions into so called riskier assets. As mentioned before in this column, the fall down to 1.3500 in cable was so swift that the rise could be just as pronounced and with the market brushing off last week’s downward revision of the UK’s credit rating outlook there are plenty of calls for the cross to trade in the 1.6000s for a while to come. As a result the euro is also benefited against the dollars demise, having traded above 1.4000 last weak and flirting with the idea of doing it again anytime soon, although resistance is seen around these levels. For GBP/EUR we’re testing resistance around 1.1450 and have failed at that level once so far this morning. A breach of here could pave the way for a new 2009 high, giving some cheer at least to all UK holiday makers looking to go to the continent this summer.
Crude didn’t last too long below the $60 mark and the moment the confidence figures in the US were released the price just rallied and hasn’t looked back since. $65 is expected to offer some resistance, but as each trading day goes by it looks more and more like OPEC wishes will be granted of $70+ a barrel. The rally was also assisted by comments from OPEC members that oil prices may continue to rise (talk about talking your own book!).
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