Gorgeous George set out his plans to revive the British economy by announcing something that has left most people scratching their heads as to what it means.
When you look at the record of the coalition over the past 18 months you look back and see anaemic growth (admittedly most of the reasons behind that is out of their control), stagnant employment and a deficit that they promised to reduce continuing to balloon. You have to appreciate that the task they’ve been left by the previous government was not an easy one and with the backdrop of slower global growth it is even more so. What is so desperately needed is a pick up in growth and the so called “credit easing” is one measure designed to give UK businesses a bit of a boost. The problem is that it might bring down the rate at which small and medium businesses can borrow, however it won’t necessarily mean they’ll want to borrow when the outlook is so bleak and confidence is shot to pieces.
The situation makes the protestations outside even more ridiculous when you consider the state of the public finances. Just because public sector workers who’ve enjoyed exceptionally generous pensions are going to see their retirement packages renegotiated doesn’t justify their protests and demands to keep what they were promised by the previous government. It is an unfortunate state of affairs that they have to feel the brunt, but then so has the private sector. The public sector can’t expect this government to simply borrow more money that we can’t afford in order to stump up for something that is unsustainable.
At the moment the bond markets are giving the UK the benefit of the doubt as the Coalition is trying to reign in the deficit, but so far hasn’t had much luck. If they were to reverse their plans and say OK we’ll just borrow more so we can retire in complete comfort and our grandchildren will pay, the markets would punish us in the same way they have been the PIIGS.
Enough about politics and onto the markets. At least it gives a little focus away from the dire situation in the eurozone (I said “a little”). The FTSE has been taken back down to the crucial 5000 support level again which it is tentatively hovering above at the moment. As one would expect clients have bought into the recent dip in the hope that the index will bounce again, just as it has on the last three occasions in the past couple of months. At the time of writing though continued weakness from the poor open is setting in and we are below 5000 at 4975. It looks like there are few bulls willing to prop up the markets now, but crucially investors will be looking to see if the FTSE closes below 5000.
FX Traders are still very much on edge as European finance ministers have now pushed back the release of Greece’s next loan until after October 13th. The euro hit a ten year low against the yen and went lower against the dollar yesterday, as safe havens were the only option for traders. EUR/USD is currently trading at 1.3175 and we still know it’s fragile out there for the single currency.
Gold’s bounce back did not end yesterday as investors were seen to still be considering the precious metal a safety haven and buying in to protect themselves from the market limbo caused by a looming Greek default. As we saw in the previous session, the higher greenback did not restrain the yellow brick from gaining 36 bucks to close at 1660.0. Currently, the fact gold is trading back at 1677.0 could mean that market participants are witnessing the resumption of a new rally after the recent correction that wiped 300 dollars off the metal’s price.
The dominating concern for oil yesterday was energy demand, and this sent the black stuff spiralling downwards. Even with the sparse bit of good news in the form of better than expected manufacturing activity, crude continued its slump. Only adding to the increasing weight was the higher US dollar and sell off in equities and things aren’t much different this morning, with Brent trading at 100.82 a barrel at time of writing.