Market Comment 16th April 2009

Our comment on clients buying below 3970 and selling above 4010 paid out on three separate moves through the session and punters continue to do well in the constrained trading ranges that we are currently experiencing. As with our comment there also still seems to be no appetite to sell under 3940 (yesterdays low 3939!) but it must also be admitted that we do appear to run out of puff quite quickly as well whenever we reach 4020 to 4040.

Dealers will be eyeing a constricting wedge formed by the long term down trend from last May and the more recent rally from the lows in March. The resistance is at 4110 and support at 3945 (up from the aforementioned 3940 yesterday). Whichever of these barriers is broken first will probably give us the next directional move but we will also probably require some significant piece of news to break out.

Todays activity is starting on the weak side after the rally in the US last night and the index is now quoted at around 3980 30 or so off from the futures close but still 10 pips up from the index close at 16.30. Clients have been selling all morning and are sitting on solid positions for the early morning session.

The news yesterday that many of the Building Societies have been downgraded will be of particular dismay to mortgage hunters. Money Market rates for near Junk borrowing are very nasty (generally more than 6pc above base) and much of this will have to be passed on to house buyers. With no prospects of rates actually going lower (normally a constraint for lenders when wishing to hedge long term liabilities on short term rate fixings) there will be a desire for Banks and Building Socs to borrow cheaply for as long a period as possible but the new Moody downgrades will make this more difficult. The upshot of this is that Mortgages are likely to go up not down even if rates stay at current levels. Those on ‘tracker’ mortgages are unlikely to find anything remotely pleasant when the current agreements run out.

The Euro continues to look weak and our comment that the support at 1.3115 might come under pressure might be tried today. Yesterday’s low at 1.3145 ran into heavy buying but the bounce seems to have been half hearted. The series of lower highs on each move up may be starting to weigh on longer term direction. Still the supports are still in place and sellers at the current level of 1.3165 are risking more to the immediate upside than to another failed attempt to the down.

Cable finally managed to push above 1.5000 and even closed higher than 1.4950 in quite volatile activity. Today the sellers seem to be out once again and it is painful to say but if this is to be another failure at this level the reaction could be quite violent. The price this morning is back at 1.4942-1.4945 and this is perilously close to triggering a selloff. If we can close above 1.4950 again tonight it would give comfort to the bulls but it must be admitted that the cross is sitting on a knife edge at the moment.

It looks like being a boring day today but investors will be hoping that the recent sleepy activity levels are a precursor to a solid base being built to battle any bad news that may appear over the next few quarters. The extreme volatility of 2008 was not conducive to serious decision taken or rational investment choices.

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Simon Denham is COO of London Capital Group and Capital Spreads. We do not endorse the information and analysis available in this comment and it is provided purely for information purposes only and is delivered as a personal view by the writer. Under no circumstances is the information in this comment to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. The investments referred to herein may not be suitable investments for all persons accessing this page. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. We accept no liability whatsoever for any direct or consequential loss arising from use of the information on this web page. Please see our Terms and Conditions.

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