There is a small sense of medium sized to large corporations finally starting to baulk at various new business tax burdens being continually levied in the UK. In separate stories this morning we can see that the Port and Airline operators are seriously considering moving capacity out of Britain to the continent where the arbitrariness of retroactive or ‘boutique’ taxes are less onerous.

While this is in the early stages of name and bluff calling traders would be advised to remain cautious over the negative possibilities this may engender. With each week/month of no real signs of an economic upturn emerging the desperation of the Revenue to grab as much as at can to cover the excesses of the current administration may ruffle more and more feathers. The oft quoted 70pc of FTSE 350 income coming from non domestic sources can turn into a position of weakness rather than strength if more and more of the taxable revenue is transferred to more favourable locales.

While the city slowly starts to regain some confidence, much to the irritation of many journalists (I have to say), the rest of the country seems to be settling ever lower into the mire. The squeals from many over the lack of hubris from Goldman’s or Barclays (to name just a couple) obscures the fact that many financial institutions did not do as badly as the headline disaster stories of RBS and HBOS. Many were only forced into raising capital to comply with the increased demands of the regulators and now that much of the competition has been swept away (especially in the investment bank sector) it now seems that some players only have to blink and the money flows in.

Domestic banks are likely to continue to suffer as their loan books decay but the fact is that most units within the square mile are not, now, directly exposed to this problem.
Markets this morning tried to open on the side of the ngels but sellers have been quick to get involved and the FTSE has slipped from the 4250 level on the off to around 4220 as I write.

We are seeing heavy buying from clients who have watched the index unsuccessfully trying to break below 4200 for the last couple of days. While I can empathise with the feeling that, as nothing has really changed over the last few weeks, the markets have fallen far enough I would be wary of getting too over exposed just at the moment. I fear that too many funds/traders may have bought into the recovery story and with the low volume summer months upon us there is a reasonable chance of a squeeze on weak longs forcing a sharp shift lower. It would be advisable if you are tempted to take out any positions at the moment to be less aggressive than normal. Watch for a break of 4217 and below here 4200 which both represent minor supports.

As mentioned several times over the last few weeks cable has been trading the 1.6200 to 1.6550 range and yesterday was yet another example. The morning low was at 1.6210 and today the quote is 1.6534-1.6537. For those who read the signs it was a candy from a baby moment. We are now seeing clients exit longs and taking profits and have also seen an increasing number of reversals as well with shorts being built up above 1.6500. If you have played the game over the last six or seven days why not do it again is I suppose a reasonable view. Short players should be wary though of a move above 1.6575 as there is a solid resistance range from 1.6540 to that point. If the pound manages to get above this mark there may be a further shift higher.

Oil made a recovery move from the weakness of Monday as the support at 66.00 observed in yesterday’s comment proved too much to overcome. We have the inventory data out of the States this afternoon and traders will be looking to flatten positions before this. Look for some possible weakness in morning and early afternoon trade as the market is long at the moment but the real direction will probably occur later in the session.

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.