So RBS reports a £24 Bln loss and the market is relieved! Let us remind ourselves of what £24 Billion actually means …..twenty four thousand million pounds. I have heard of the odd multi million pound loss in my time in the city but this figure is a truly astounding sum. It would be interesting to know exactly where the figure comes from. Operationally the bank probably made many billions of profit but the write down of existing debt and off balance sheet instruments has made up the headline. What would be more interesting would be to have sight of the expected performance of the remaining loan book, is it continuing to deteriorate, is the pace of write offs increasing or slowing? And more importantly for future earnings would be the vital question of recuperation. Is it likely that a good slice of the write downs will be recovered at some point in the future or is the money expected to have been lost for good?
It is the answer to these questions that would give investors further comfort.
The stock looks to be opening at around 29 to 30p up from 22 and my comment of yesterday saying that banking stocks seemed to be finally finding some support has (for the moment) borne fruit. Our long suffering clients who have been buying the banking sector for many months will be very happy this morning as Barclays, Lloyds and HSBC all react positively to the news.
The American market yet again had one of its schizophrenic sessions rallying strongly towards the close only to suffer a 180 point fall in the last half hour. It is this inability to hold onto even small bull moves which is weighing heavily on investor sentiment (on top of everything else of course) and we really need to hold firm for a few weeks to get out of this perpetual spiral lower. I know it sounds trite but the markets need to just end the bear move rather than focus on when the next bull phase will begin.
Today sees strength in the FTSE and Dax with markets trading above 3900 for both. Up a similar 50 points or so. The weakness in the German market is starting to look very ominous as it continues to perform badly versus other majors. At the turn of the year the Senior German index was trading some 500 points above the FTSE a fact we pointed out a few days ago, it is now just below it. The unprecedented 46pc fall in exports from Japan has spooked investors in Germany as fears mount of a similar (though obviously not so large) effect for them. It is difficult to get a complete handle on numbers but in these straightened times it does not take much imagination to see that sales of BMWs, Mercedes, Audis and Porches have probably taken a pummelling. Retail sales have indicated that in the UK, at least, sales of ‘high end’ products have slumped and Germany prides itself (quite rightly) on not just the fact of its manufacturing strength but on the quality of that production.
If you are looking for signs of a turn around there are a few to be had as the FTSE index continually bounces off the 3800 level (or thereabouts). Our clients as mentioned yesterday continue to buy these levels and seem quite comfortable with the daily twists and turns.
On the currency front the pound ran into a brick wall yesterday and we swiftly returned to the 1.4150 mark which seems to have been our base level for a month or so. The failure to make any headway above 1.4650 weighed heavily on sentiment and weak longs were hammered throughout the session. Over the last year or so big daily falls have always been followed by further weakness and punters should be wary that this move does not have a similar follow through. Support remains at the aforementioned 1.4150 and we are likely to see some buying here if we get back to the price (we are currently at 1.4205-1.4208) but if it fails then there may be a sharp reaction to the downside. Our clients are buying but placing tight stops.
Gold had another poor day finally closing at around $950 but buyers still seem confident of a return to the highs. Clients are getting ever longer of the Yellow metal as we fall in price! With traders getting so confident in one direction it is tempting to look in the other (natural perverseness I am afraid). With indices continuing to hold above the very major support levels it is beginning to feel as though we are either in for a huge rally or the mother of all disasters. A disaster would drive Gold to the heavens a rally and we could be back around 600 to 700 dollars in very short order.
Click here to go to Capital Spreads
Simon Denham is COO 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.