Sell in May and go away?
Not yet it would seem as yesterday’s sell off was one day premature for us to start claiming this age old adage is playing out. May historically is a mixed month for the FTSE with half of the last eighteen years seeing gains and the other half losses with both on average seeing changes of just over 3% on average. European indices are closed for the 1st of May bank holiday celebrated on the continent so volumes are likely to be thinner than normal as it's hard to see if there’ll be any significant move in either direction of the London market.
But even though European woes continue with Spain dipping back into recession and Greek retail sales plummeted the indices have held up pretty well. So far the bond markets are yet to really attack Spain in the way they have in the past, and certainly not to the extent that they did in Ireland, Greece and Portugal ahead of their bailouts. It seems a little odd that this is still the case as the consensus is that Spain is teetering on a knife edge as it implements austerity measures that will do little to bring down their ridiculously high unemployment and spur growth, whilst at the same time the majority believe Greece will need to either have its debt restructured again or leave the euro altogether.
The FTSE is just seeing a little interest from the bulls this morning as it attempts to recoup loses from yesterday and at the time of writing it is at 5750. The index is still yet to get itself above what’s proving to be strong resistance around 5800 and if this does materialise then there could be a push higher to around the 5830/50 and then 5900 levels. To the downside the major support is around 5640. Clients seem undecided as to where the FTSE is headed in the near term as it is pretty much flat, and the same can be said for the Dax. The US indices however, continue to defy gravity and are being heavily sold by clients who clearly believe some sort of major retracement is around the corner as we are really yet to see such a move.
Economic data comes in the form of manufacturing numbers from the UK and US, both of which are expected to decline but hold above the expansion number of 50.0. The PMI data has been stronger than expected on the whole so far in 2012 which is why predictions were that the UK would narrowly avoid a double dip recession, but according to the ONS that’s not the case and our economy continues to flat line. With input prices remaining stubbornly high and sterling on the up other pressures are affecting manufacturers so the number might be lower than expected.
The euro closed rather flat versus the US dollar at 1.3240 as the disappointing US economic figures were accompanied by more bad news from Europe. Specifically, Spain’s gross domestic product declined 0.3% during the first quarter throwing the country back into recession as it was the second consecutive fall. At a time when street protests are growing it makes the government’s task of cutting the budget deficit even harder.
The event dominating the early trading in gold was undoubtedly a sharp sell off which left everyone wondering if it was a typing mistake, the so called ‘fat finger’. It was serious enough to halt trading to allow ‘the market to recalibrate’ according to a CME spokesperson. For the rest of the day, gold found its way back up and closed $1.45 higher at $1663.88.
Growing worries regarding the European economic outlook, sparked by Spain slipping back into recession, pushed WTI crude prices lower in the morning session yesterday. Although the US economic figures also painted a negative picture, a late rebound in the stock market reducing the early losses was of help to the energy sector. WTI crude prices ended marginally down, 6 cents at $104.87.