Unemployment is rearing its head in a big way at the moment but the long term problems might be only just beginning. It is not known how many University and School leavers have failed to get gainful employment but an indication might be taken from the fact that we have just employed an Numerate degree graduate with a First from a ‘red brick’ University. Nothing surprising in that, BUT… we are now in December and we were only the second interview the person concerned had gained in several months of looking. For a reputable First?
Times are not good and it will be only a few more months before next years crop of youngsters hits the street. This is aside from the reported 67pc of companies that are reporting intentions to cut back on staff numbers. 67pc is a frightening number and this is the percentage that was actually willing to ‘fess up’! No wonder the pound continues to slam lower.
The value in world terms of the FTSE indices has taken a real battering over the last few months. We might think that the FTSE 100 has rallied 18pc from the lows in October but in Euro terms we have actually fallen 2pc in the same period and this does not even include the fall in value for the first nine months of the year as well. The pound has fallen a minimum of 25pc against even the weakest of the other major currencies this year and in the same period our Manufacturing output has actually fallen. Economists/Politicians who claim that a weak currency is ‘good’ for domestic business might ponder the perennial strength of the German and Japanese manufacturing base, countries that have had to contend with strengthening currencies for most of my life time.
This mornings opening is very peaceful on the indices with the FTSE continuing to trade around the 4300 level. The support at about 4220 has held good yet again and the resistance to any move above 4400 also continues to hold. This is making for great times for our clients who have ‘never had it so good’. Buying every fall and selling every rally is paying dividends at the moment. Of course when the break out does happen it would be wise not to stand in its way.
Settlement for the Nymex Crude January contract is likely to be some 5 bucks under the Brent number and more than 4 dollars less than the spot February price. Dealers can hardly say they were not warned though, with BP and others stating that they were storing oil in tankers offshore ‘waiting for a better price’. This is code for ‘onshore has too much crude sloshing around just now and we do not know what else to do with it’. Storing oil in a super tanker in the Gulf of Mexico must rank as one of the most expensive Big Yellow Self Storage facilities on the planet.
The closing price last night on January Nymex was $40.06 the actual low print on the contract, the high was 148.35!
Currency markets continue to hammer the pound this morning as the momentum of the move lower seems almost impossible to stop. EUR/GBP is at a new all time high of 0.9346-0.9348 and everyone seems in a big hurry to get to 1.0000. The precipitous move does of course add to the problems for the BOE who apparently did not want to cut rates further because of the impact on the currency! Ha! They still, even after all these years, do not seem to understand currency markets. Traders will buy or sell currencies in anticipation of the next rate move NOT in reaction to the last (aside from the immediate aftermath of a decision). If the perception is that rates are going lower then a currency will be sold. Better to get the rate moves out of the way sooner rather than hang around and watch your currency get smashed up.
Pretty soon talk will turn to ECB rate cuts and we may well then see just as sharp a move against the Euro.
Gold made an attempt at the resistance mentioned yesterday at 870-880 but could not quite summon the energy for the break out. That said we are still very handily placed at 867 this morning and there must be a good chance for another attempt. If we hang around for too long markets may begin to feel that the resistance to a move higher is ‘being confirmed’ and selling may come back again.
Retail Sales are out at 09.30 which might cause a bit of angst. Expectations are for a fall of 0.6pc MOM but still 1.0pc UP YOY. Over in the States the Philly fed confidence indicator is out at 15.00 and is also expected to be weaker at negative 40.5 down from 39.3 last month.
Click here to go to Capital Spreads
Simon Denham is Director 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.