The markets are finding it difficult to make gains and the focus remains on the overall European picture which is getting in the way of any good economic or corporate data.
The problem is that the economic and corporate data isn’t exactly excelling either so investors remain fixated with what’s happening on the continent.
US corporate earnings are now in full swing and it’s the investment banks that are making the headlines with some missing forecasts and others beating them. The bottom line for this industry is that revenues are on a downward spiral and jobs are being cut left right and centre. It’s music to many peoples’ ears but the loss in tax takings is significant when governments around the world are crying out for every bit of tax intake that they can get. In the UK the restrictions on bonuses led to large increases in salaries to compensate which now are unsustainable, and so rather than saying you don’t get a bonus this year banks are saying you no longer have a job. Not only is this year’s round of banker bonuses going to be way below that of previous ones (and rightly so), within the City there’s concern that the current job losses are only the beginning and there’s another raft of redundancies around the corner. With job losses across the UK and the outlook for the global economy looking dodgy it’s going to be difficult to reverse the trend, no matter what the politicians try to do to stimulate things. There are even many sceptics believing that the renewal of QE launched recently by the Bank of England is not going to doing anything other than improve the balance sheets of larger companies. Unfortunately, if our biggest trading partner is not growing then they will not be buying any of our kit.
Already this morning’s rally on the back of a good session in the US and Asia overnight is having its resolve tested. We started at 5450 and are now drifting slightly lower, but not by much. The rallies continue to remain hard to come by and it’s impossible to see the FTSE getting back to the dizzy heights of earlier in the year without a thorough and convincing solution to the eurozone debt crisis. The visit to above 5500 seems like quite a hurdle to get back over but if the bulls can muster the momentum to get back above there their next target will be 5600/50. To the downside support is seen at 5345, 5260 and then the biggy at 4800.
Bank of England minutes are released this morning so it’ll be interesting to see just how many of the MPC members joined the increase QE camp that Adam Posen has constantly been in. Then later today the US release their inflation data and then in the evening there’s the Fed’s Beige Book, so there might be some excitement later on in the day too.
After a bit of a rollercoaster of a day, the euro ended the day pretty much flat against the dollar. Traders are cautious at the moment as to how things are going to pan out at the EU leader summit on October 23rd, although France and Germany stated that they would support the idea of quadrupling the European Financial Stability Facility to two trillion euros. The pair are having a small rally this morning off the back of that, trading at 1.3815 and there’s support seen at 1.3725 and resistance at 1.3830.
Gold’s decline was far from coming to an end yesterday, dragged down mainly by concerns on the Chinese economic growth outlook. It seems that investors have changed the way they regard gold, whether this is just for the short term and are not using the precious metal as a safety haven during these turbulent times. At the end of the session, gold had shaved off 16 dollars and sat at 1654.2 after hitting an intraday low of 1626.4. At time of writing, it looks as though we could be in for a repeat today, as the yellow brick is down at 1649.2.
You would have thought that as China, the world’s largest oil consumer, reported a slowdown in economic growth, this would instate fear around the demand for crude, but this was not the case in yesterday’s session, as somehow the black gold edged higher. It also brushed off negative news attached to the European debt problems and followed in the direction of the equity markets, which lately have been acting as a good indicator for economic sentiment. This morning Brent is at 111.29.