Support in all the major indices held with a vengeance yesterday and the response to some slightly good numbers out of the US was emphatic. After trying, yet again, to break below 4050 early in yesterday’s session the FTSE bounced strongly to trade up to 4150 by the close and then the futures rallied after hours up to 4220 before some late profit taking took the shine off things. As mentioned yesterday our clients were heavy buyers below 4100 and made out like bandits on the ensuing rally in the afternoon and evening. All the major indices failed to break into new lower territory and the bounce from support was seen across the global markets. 

The market is now expecting to open at around the 4165 level today as we digest the poorer than expected BHP numbers. The 4000 to 4350 range remains intact and it is difficult just at the moment to see what is going to cause a break out in either direction. 

Early hours saw the heavily anticipated trading statement from BHP cutting into the optimism building up in the sector. Costs continue to grind into margins and the price of commodities remains subdued as the global economic landscape slides inexorably lower. One off costs of mothballing mines was the main culprit for the depressed profit but the overall revenue/cashflow number was still very strong and should translate into better bottom line returns when the upturn finally arrives. The decision to pull out of the Rio deal has been just about the only good piece of news for share holders in recent months but the abortive bid still set the company back $386m. At the moment it seems that this was a price worth paying as any mining company with heavy debt levels has been slaughtered in the last year. We might think that banks have done badly but so have many of the miners. Rio, off 75pc, Xstrata, off 85pc, Anglo, off 65pc, and Kazakhmys, off 88pc. Sometimes you wonder how the FTSE remains as high as it is when you look at the individual share price destruction.

Also, overnight news that President Obama has restricted pay to executives in bailed out units to no more than $500,000 might sound great but it is not good from the viewpoint of those who like to see politicians taking reasoned judgements rather than kneejerk populist reactions. Of course the executives concerned will no doubt find lucrative ways around the restrictions but this does not bode well for the future. The pettiness in cutting back on office parties and renovations is just the kind of action that is hardly likely to boost the confidence of workforces already stunned by the last year’s turn of events.

The currency markets are still trying to assess the chances for further weakness in the pound as we oscillate around well above the recent lows. While the UK economy is no doubt in a worse situation than many of it major competitors the dramatic falls in Sterling already in place might have factored this in. Targets for the bears are still considerably lower than current prices with 1.2500 mooted for the USD and under 1.0000 for the Euro. For longer term players though the risk rewards are starting to tip in favour of the pound as repeated attempts to drive the various crosses lower are failing to make headway. As with the various indices repeated failure to break lower might build up pressure for a more serious rally over the small recovery seem in the last few weeks

Gold remains just below the 900 mark as traders try to assess the chances that the current stability in the global markets will continue. The swathe of ‘buy’ recommendations in equities coming out from the brokers is cutting into asset allocation to the precious metals market but confidence is still very fragile and we are still just a small step away from further bear market activity causing a return to the ‘Gold flight to quality’ scenario. The market made several attempts to get under 890 yesterday but to no effect which is helping to build support just below the current price traders remain long but not as heavily placed as in recent weeks. So the perception is still bullish but not aggressively so.

Oil had the tightest trading range in over a year yesterday as we barely made it over a dollar from peak to trough in a very subdued performance. In reality crude is cheap at the moment but the classic arguments over supply and demand continue to make grim reading for producers. Oil storage is just too expensive to contemplate for any significant length of time and the current glut in production (which still does not seem to have taken into account the reducing demand) is weighing heavily on prices. With Nymex at 40 bucks only the cheapest of extractable crude is profitable (after taking into account state tariffs etc) so at some point there must be a reduction in supply as wells are closed off to preserve future value. The problem is that most extraction is under the overall control of the various states concerned and they need the money. Not only this but also they cannot tolerate the job losses a major shut down would entail. So it seems we will have oversupply for some little time yet.

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