Markets look reasonably happy this morning albeit likely to open at lower levels than the close at 16.30 yesterday.
The US looked at one point in the evening session that it was going to go into melt down once again with a three hundred and fifty point fall in just one hour in the Dow but eventually it pulled out of the crash dive and is now just 150 down on Wednesday’s close. The markets are now struggling to put in place more than two down days in a row and the consequence is that we are still pretty much at the same level as at the end of the sell off in October. Not only this but the oscillations appear to be dying down a little as well which might tempt some further evidence of tentative longer term buying.
The call on the FTSE is at 4115 down around 50 points but this is actually quite good as at one point last night the FTSE Futures were indicating a price 100 points lower than this.
Traders continue to try to buy on weakness and our clients certainly got heavily involved yesterday evening and seem to be happy to hold on into this morning’s session. Rather like yesterday where early business was constrained by the upcoming rate decisions today all eyes will be on the Non Farm Payroll number out of the States at 13.30. This may well lead to a period of very low trading activity after the initial opening flurry. Expectations are for the NFP to be down by 333K which would take unemployment up to around 6.8pc from the current 6.5pc. We must fear that the UK will be following the US down this same curve as small businesses struggling for survival stop both employing new starters and start reducing headcount. We have all read the big headline layoffs from the Banks, Recruitment and Retailers but this hides the very much greater number that never get reported.
The rate cut yesterday is welcome but screaming at banks to pass on the lower levels to borrowers is probably not going to help. Forgive me for being a bit of a memory man but didn’t the Government insist on the banks paying them 12pc for their cash injection? Not much profit in lending that at 2 or 3 pc! In the final analysis banks can only lend what they have and at the moment they are all in a weakened state and having to pay 4, 5, 6 pc to get depositors to put funds into their accounts. After costs etc there is nothing in it for the banks to lend at much less than 5.5 to 6pc
On the Currency front the cut in rates had little effect, there was a brief fall in the Euro and the Pound followed by a short covering rally and now we are back at the same levels of Wednesday and Thursday morning. As mentioned yesterday Sterling is still struggling to make headway below the 1.4660 support level and if it can manage to keep itself above this level today there might be a chance of a bit of a move higher on short position closing before the weekend. The Euro is also not exhibiting many signs of falling out of bed with the new rate of 2.5pc (now the highest of the majors!!). 1.2725-1.2750 looks to be support here and with the current price at 1.2750-1.2752 we are probably either in for a nice bounce or a sharp sell off after the 13.30 data. Take your pick.
As commented in yesterdays submission the speed of the Oil slump would indicated further pain to the downside and this was realised in very short order as the market reversed an afternoon rally to record a closing fall of 320 cents on Brent. A new low. With taxes, extraction costs, transportation etc many operations are now just not profitable below 40 buck (we hear) and the news stories that BP and Shell amongst others is storing crude in expectations of higher prices next year shows how gullible some reporters are. The cost of storage is vast and the mere fact that the market now knows that huge inventories are being built up pushes prices even lower. The only reason an oil company would store crude is because they cannot find a buyer. Otherwise they would have just left it in the ground.
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