Constrained activity remains the major story with virtually every major index, currency and commodity continuing to oscillate in a very tight trading range.

While individual stocks are winging all over the place the net effect on the markets is muted and the fear for many broking houses will be that the current market conditions continue through the year.

Historically this inertia is unusual and is normally ended by a big break in one direction or the other and while this will remain (probably) the eventual outcome it has to be admitted that it is difficult to see any such event happening in the short term. The FTSE is stuck under 4100 the S&P under 870 the Dax 4675, Sterling between 1.4450 to 1.5000, Yen under 100.00, Gold under 890 to 900 and Brent Oil between 48 and 54 bucks a barrel.

While any attempts at the boundaries have appeared to have good chances of breaking out in reality any trade opposition of these levels has paid out handsomely to clients willing to take the risk.

Today is likely to be very quiet in the UK as we all await the Chancellor’s budget statement this afternoon and you do have to have a certain amount of sympathy with Alistair Darling as he attempts to justify the disastrous mismanagement and profligacy of his boss. Whatever happens now, rightly or wrongly, he will almost certainly go down in history as being one of the worst Chancellor’s of the Exchequer ever. While the real architect of our demise, the sainted Tony, swans off across the globe picking up huge fees for spouting … errrrr.. well,… bugger all actually.

The betting is on a spread between 175 and 200 bln pounds of borrowing requirements this year which means that, just for 2009, the state will be overspending by around £5.5K per wage earner. Or, if you cut out public sector workers, nearly £8.6K for every net contributor into the exchequer. The prospects for next year are pretty much the same if you have confidence that the recession’s nadir has been reached but it is still a leap of faith that any green shoots will deliver the kind of growth that we have seen over the last ten years. The unpalatable fact is that the major reason that the UK was doing reasonably well for the entire Labour period in office has been because of the rape and pillage of our future assets to pay for a one off surge in public sector spending. With no prospect of a repeat of this largesse and with the millstone of current state liabilities hanging around our necks the odds must favour a very, very, slow and long term recovery curve continually at the mercy of outside shocks to the downside.

Dealing remains quiet this morning with clients selling into the rally late last night and sitting on profits in the early falls this morning. Dealers will probably await some indication of direction from the states but it is becoming increasingly evident that aside from speaking ad-nauseam President Obama has little more idea of how to get us out of the hole we have dug for ourselves that anyone else. The small uptick in emerging market activity has been leapt on by virtually everyone as an indication that things are about to get better but it must be said that the Western economies are still heavily dependant on internal consumer activity to drive growth not on the prospect of export business to the Far East.

The FTSE opened unchanged at around 3980 but has seen a steady drip drip of selling on the off and we have slipped back to 3965 as I write. This is very much middle of the range and interest will probably not be pricked until we approach 3875 or 4030.

The Dow and S&P have slipped around 90 pips since the close last night as fears over the banking sector continue to swirl. The US indices have had a slow curve higher since the lows of early March but this is looking to be getting ready for some sharp action either up or down. The 8000 level in the Dow seems to have an almost magnetic attraction and since October last year every move seems to have been an attempt to break away from it only for the irresistible gravity of the number acting to pull us back. For the FTSE the same could be said for 4000 and for the S&P 850.0.

Sterling is slipping in morning weakness as dealers worry that the Chancellors will say something truly awful and I would be surprised if there were much in the way of open positions from our clients as he gets to his feet this afternoon. The ever increasing state liabilities are weighing heavily on future expectations and the current solution of Quantitative Easing is all very well from an academic viewpoint but if nobody else indulges in it (i.e France, Germany, Spain etc) it will leave the poor old pound in a rather dodgy situation.

Gold had a good old pop at the major resistance of 890 yesterday but in the end the rally in equities later in the session relieve the pressure and prices slipped back down to the low 880’s. with the overnight index weakness there is a bit of contra buying for Gold and we are now at 885 still poised for activity in either direction.

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