German growth data has put a bit of a spanner in the works this morning as expectations of around 0.5/0.6% have been a tad stymied with the announcement of an anaemic 0.1% performance.
With the half of Europe placed below Lyon on the map looking to the Germans to bankroll them through the tough times ahead any indication that the powerhouse of Teutonic manufacturing is, in fact, suffering along with everyone else would not be taken well by virtually every asset class you can think of.
If the Germans and French do finally come to the rescue of the PIIGS with a Eurozone bond issuance program we can imagine that the rating agencies will start to sharpen their downgrading pencils once again. It is all very well coming to the aid of your trading partners but if their ‘bad money’ starts to infect yours then populations may not be as eager as their elected representatives to jump into the mire with them. Let us not be under any illusion that the German voters will quietly assent to insuring Greece et al, there is a very vocal argument going on and a rescue package is not yet a done deal.
Shell have managed to blot their copy book with a minor leak in the north sea that would (probably) have gone pretty much unreported if the Deep Water Horizon disaster had not occurred. As it is we can expect finger wagging and possibly more regulatory oversight which will further push up the cost of exploration/extraction. Shell's share price is off about 30p this morning in line with the general market falls (0.5%) but we may find margins under yet another compression.
Volumes yesterday were pretty slow as the markets attempted to drag themselves out of the mire and many commentators have been expressing the view that this is a weak indicator. The argument revolves around the idea that if investors were truly convinced that a low had been reached then there would be a significant volume of Bottom Pickers looking to pick up stock at good returns (this is not to say that they would be right, just that there was sentiment to buy). As it is investors are (quite naturally) a little shy of leaping back into a market that has just cost them a pretty packet. The problem is that while people admire Mr. Warren Buffet’s 15 year investment cycle hardly anyone can actually live with it. Immediate losses are, well, losses and it takes a strong nerve to hold on both when you are losing and indeed when you are winning. We are actually seeing Traders more comfortable buying today than yesterday so there may be a bit of support around at least in early action.
The FTSE is currently back just below 5300 bang on the strong support level mentioned yesterday (5295/5300). Should we get significantly through this then technical traders will be looking for 5210/25 as the next target. If support holds there is weak resistance at 5320/25 and then up at yesterday’s closing area around 5355/60 to 5370/75 where we foundered for much of yesterday’s session.
All the indices are working in tandem with the Dax (naturally) slightly worse off than the others due to their GDP data but it seems to have found support at 5900 but we must keep an eye on events as confidence can evaporate at a moments notice. Below 5900 there is further support at 5830/40 and 5800. On the up side 6000 is the obvious psychological level but 6050/6060 is the bigger barrier and then 6100 where we gave up yesterday and last Wednesday.
The US markets were quiet yesterday (only a 200 point range for the Dow!) giving up at just below 11500 before retracing to the current price of 11360. As mentioned the US indices looks a bit pricey versus the Europeans so it would not be a total surprise if there was some underperformance over the coming weeks/months. Support remains at 11320/30 but we have staggered sideway through the short term rising trend below here is 11270/80 and then 11215/25.
Currencies have reacted to the poor data with the Euro dropping against the dollar back beneath 1.4400 but it is a difficult call as poor numbers from Germany probably reflect the same performance elsewhere. The general move away from the dollar as a reserve currency is still more powerful than economic or political woes. The currency has support at 1.4365 , 1.4325/30 and 1.4260/65 with resistance at 1.4400/05 and 1.4475/85.
The pound has fallen on the German data as well and has now given up much of yesterday’s rally at 1.6330. the support at 1.6300/10 is actually quite strong but below here we are looking at 1.6235/45 and 1.6085/95 on the up side the big level is 1.6480/90 where we have run into a brick wall innumerable times over the last few weeks. Virtually anything over 1.64 is a struggle to hold on to but if we do then sentiment may well turn heavily in sterling’s favour.
Gold remains the asset to own. As mentioned the trend is accelerating in recent weeks and both Bulls (and future Bears) will be looking for a ‘blow out’ day soon to indicate a near term top. As indices weaken the money piles into the yellow metal the yen and the swiss franc. As mentioned at some point this will all go wrong so it would be unwise to ‘bet’ the house on it but while the impetus continues it is just as foolish to try to stand in the way.