Europe remained in the doldrums yesterday but the US seemed to decide that enough was enough for the time being and managed a small rally after the European close to give some relief. Although, to be fair, even though the Dow managed a 200 point rise it is still below the close on Friday and the lows of last autumn. The fact that the Dow hit almost exactly the 50pc fall in prices on Monday at 7105 (down from the high of 14198 in October 07) probably also helped the bounce.
Our Clients have been quick to sell into this move up and the perception from my dealers is that they are expecting worse to come. This is not an unreasonable belief if you peruse the papers and newswires which seem to be filled with unremitting gloom but as mentioned in yesterday’s early comment there are some very attractive valuations out there at the moment which (if you can afford a long term view) will probably pay off in time.
This morning sees the FTSE called 60 points higher on the back of the move in the US last night and we are likely to get an extension move as ‘bottom pickers’ wonder if we are at the lows and try to pick up stock. The fear for everyone is that this will prove to be just one more false dawn and buyers will be left blowing on burnt fingers once again. On the plus side the banking sector seems to have hit something of a bottom as the falls over the last week or so have not seen any further deterioration in their values. Barclays continues to oscillate around the 100p level and Lloyds and RBS at around 55p and 22p respectively although HSBC now seems to be under the cosh.
The S&P index (like the FTSE still above Autumn lows) bounced sharply from the 740.5 November 21st nadir level only managing 742 on Monday and 746 yesterday. Traders did not seem to have the power, just yet, to send us into new territory but it must be said that President Obama seems to have run into a very, very short honeymoon period indeed. The stimulus package might work but not much of the infrastructure effort appears to be ‘new’ it mainly seems to be the bringing forward of ‘mend and refurbish’ projects. Aside from keeping people in employment it will be difficult to estimate the long term boost or benefit to the economy. The tax cuts are likely to give some light to the retail sector but again, if the general populous is very anxious over their personal future, this windfall may just go mainly towards debt reduction. No bad result in the great scheme of things but not what is needed just about now. His avowed intent to stop special interest projects fouling up the legislative process did not even last past the first major hurdle as Congress pushed for individual state handouts to ensure the vote.
Trading remains very fast a furious around the major Currencies and commodities as dealers try to assess the probabilities of various events. Gold failed to challenge the 1000 level again and longs were quick to exit in the face of limited selling pressure in other assets. The yellow metal has now dropped back to $956 not a huge fall but possibly enough to worry dealers into fearing a ‘triple top’ formation as mentioned yesterday. If Gold does start to slip further more analysts might point out that the rallies of Mar 08, Jul 08 and last week are all petering out at around the thousand buck mark. Big Numbers can become very psychological levels for investors and traders.
Sterling gave up a little yesterday versus the Euro and Dollar but seems keen to take it back in early action this morning. As mentioned several times recently the pound does appear to have regained some of its allure since mid January (about the moment that its death was announced across the globe!) and while it is difficult to see what is suddenly so attractive about it this is not actually the important question. The important question is what is so much better about the prospects for the Yen or Euro as above Sterling? They all have some serious structural failings but the Pound might be considereed cheap and the others expensive.
With the dollar bouncing sharply against the Yen precious metals suddenly started to look a tad expensive which probably precipitated some of the reversal in Gold and Silver yesterday as the Far East decided that profits were the better part of valour just for the moment.
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