Markets appear to be a tad nervous on the open after the US took us through the mill last night. The Dow managed several 250/300 point moves in the afternoon/evening session including a 180 point five minute move at around the close. It is this type of unpredictable price action that is keeping investors on the sidelines (added, of course, to the underlying dread that there is something really bad about to happen).
Goldman Sachs announcing a $2billion loss for the last quarter was not what we wanted to hear and the shine has been well and truly tarnished from the company’s glowing reputation. Revenue flows are becoming ever harder to grab hold of and GS seem to have fallen prey to an attempt to make up for lack of income in some areas with, effectively, a punt in distressed debt. Commentators always love the metaphor of trying to catch a falling knife and GS seem to have mistimed the snatch.
Difficult to get too excited this morning the FTSE is off some 35 points from the good close yesterday but there is little to read into the activity in early action. The recent rally of last week struggled to make headway above 4350 and below here 4160 seems a tough nut as well. On the downside there is still strong interest below the 4000 level so the current price of 4084-4085 would appear to be pretty much mid market.
On the Currency front the dollar is on the move again (especially versus the pound) and dealers are getting ready for the rate decisions over the next few days. Reports of comments from Prof Buiter (ex MPC member) that sterling rates may go to zero (!) have not exactly helped the poor old pound and the level of miscalculation from the BOE over the past eighteen months is becoming ever clearer. Cable is trading at 1.4765-1.4768 and we are once more closing in on the major support at around 1.4650. Four days ago the cross was 1.5520. As mentioned many times the trend is still bearish and rallies have been sold into by our clients.
The Euro is also falling a bit versus the green back as speculation that the ECB will also cut rates sharply filters through dealer’s actions. Longer term the Euro may do better against the pound and dollar as trade and budget deficits work their evil but for the time being we are still in a dollar and yen rebound scenario. While most of us concentrate on the Pound, Dollar and Euro the rise of the Yen has been truly spectacular over the last twelve months. The Sterling cross has move from a peak of 251.00 to the current 137.06 a fall of over 45pc. If this had happening against the dollar we would be looking at a price of around 115.00 for Cable! All those Mazda’s, Toyota’s, Sony TVs etc etc are being sold, in Yen terms, for 45pc less than this time last year. This seems to be saying that the UK is either entering an inflationary spiral or a deflationary slump we just cannot decide which one just yet.
On an anecdotal side my ability to get a seat on the train virtually every time these days might be an indication of falling employment in the city and, for the first time, I am hearing almost daily news of redundancies in my circle of acquaintances. The run up to Christmas is traditionally the time for staff clear outs “Ho, Ho, Ho” and all that notwithstanding but this year the news seems to be universally poor.
Stagecoach’s H1 numbers, as feared in my Monday comment sum up, have not inspired the markets and the stock is off almost 20pc in early action. Unfortunately this stock is a late comer to the bear market and it appears to have a significant overhang of longs.
Sage is also down a tad on reasonable numbers and the divvy yield of around 5pc looks good value for a company becoming the market leader in their field.
Gold rallied yesterday on not much info but is slipping today. At 780 we really need to get back above the 800 mark soon to regain positive momentum. The longer we remain under here the greater the chance of a retest of the 650 to 750 range.
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.