A degree of normality seems to be creeping back into the market as Greece’s stock market posted it's biggest one day gain yesterday since the 1980's.
Even though the market likes what they see in the merger of two of Greece’s troubled banks no one seems to have learnt anything from the UK when Lloyds was forced to take over HBOS. In a classic example of shifting a problem from one side of the table to the other it looks like this deal is going to do exactly the same whereby a bigger bank will be created with the same problems. We will have to wait and see, but for now London is catching up with other European bourses as it was closed for it's August Bank Holiday yesterday, so a triple digit gain is greeting investors as they return from the extended week end.
This August has been a month many will wish to forget which started turbulently as the US couldn’t agree on their debt ceiling and subsequently received a credit downgrade. Since then the markets have continued in that vein of form with wild swings between highs and lows, riots across the UK, inability of European leaders to come to agreement on how to deal with the eurozone crisis and continual downgrades to global GDP forecasts. As a result we’re about to record the most volatile month of August for the FTSE on record.
Things are unlikely to get any better either, from a volatility standpoint. Markets just seem to be settling themselves but events to come could lead to further big moves in either direction. Germany’s Angela Merkel faces crucial votes of confidence, Italy has to get some 10y bonds away and that’s just Europe. In the US non-farm payrolls are on Friday and the market still waits in hope for Ben Bernanke to open the door slightly wider to further stimulus, which may come at some point in September.
Economic data is thin on the ground this morning but later we have consumer confidence from the US. This is a very important release due to the US economy’s huge reliance on its consumers which is expected to decline along with almost everything else at the moment. The University of Michigan numbers have been plummeting so today’s number is due to fall from 59.5 to 52.2 and when you’ve had stock markets dropping so fiercely then there’s little to be confident about! We also get FOMC minutes released after the FTSE’s close and when they last met we were told that they will keep their interest rates low into the middle of 2013, but the devil will be in the detail as investors will wish to see what the major concerns are surrounding the recent downturn in economic indicators.
The strength in equities is not being complimented by the usual dollar weakness you’d expect in the currency markets. The greenback is just holding it's own against the other majors so EUR/USD is at 1.4490 and GBP/USD is at 1.6380 at the time of writing. Volatility in the currency markets over the past couple of weeks has actually been rather low when compared to equity markets with EUR/USD oscillating around the 1.4400 level so for the near term at least support and resistance is seen at 1.4430/1.4395 and 1.4525/50 respectively.
Gold certainly has seen as much volatility as the equity markets in recent weeks with increased margin requirements from the underlying exchange contributing to the major swings. It is creeping back towards 1800 this morning in a quiet session so far, but the moves over the last few days show just how dangerous dabbling in commodity markets can be and even a small position can see large swings in and out of profit.
Crude prices are also a little higher in line with gold with Brent at 112.20. The fact that it bounced so aggressively off $100 a couple of weeks ago indicates that there are still plenty of buyers of the black stuff out there but the recent lower highs and lower lows since April is a cause of concern for the bulls.