So, now the politicians have all gone home we can sum up the thinking behind the ‘historic’ agreements decided upon in their one day shindig.
Spend vast sums of money on …um…. something or other. Turn bankers back into copies of Captain Mainwaring. Demonise Hedge Funds. Ditto Tax Havens
errrrr that’s about it.
In the end the politicians did what they always do best, agree to spend mindboggling sums of other peoples money in a sort of ‘Brut, splash it on all over, ’enry’ scenario. Maybe we can keep the dance going a little longer before somebody start to get a whiff of the stench.
Markets this morning are up but the FTSE is still struggling to make it up to the highs of Thursday at 4160 and there is a nasty little gap in the charts from Wednesday night – Thursday morning between 3960 and 3965 in the June Futures contract. Markets made a valiant attempt to fill it on Friday getting to within 5 points of closure before the pressure from the US and Europe became too much to ignore but the fact remains that the Dax, Dow and S&P have all hit new recent highs this morning but the FTSE is now 80 points shy of the peak on Thursday.
With the pound regaining some of its lost ground and manufacturing export markets still dead in the water the benefits of a low currency seem to be just as elusive as ever. Rather than giving industry a shot in the arm all that seems to have happened is that we have imported inflation which runs the risk of killing off what green shoots are beginning to appear. In the joy of the G20 ‘agreements’ the market seems to have forgotten that the numbers are still grim, not as grim as the previous six months, but this is merely a matter of perspective. In reality, the rate of decline of the last quarter of 2008 could hardly be maintained.
This is not a message of doom and despair it is just a caution that the markets seem to be getting a tad carried away in all the hype. It would be pleasant if we could just hold steady for a bit while we await a bit more information. The problem is that (as I mentioned late last week) everyone is now fearful that they have missed the lows and are busily buying anything that moves, this is not a good reason to get too heavily involved just yet.
On the currency front the yen continues to weaken and the fear must be that the BOJ is in there helping it along. This was a speculative possibility raised in this comment a few weeks ago when we were down at 90 vs the dollar when the horrendous Japanese manufacturing numbers were beginning to appear. The fact remains that even at 150 vs the pound and 101 against the dollar (well above the lows of recent months) the vast majority of export business is still massively uncompetitive price wise. Electronic items in stores seem to be considerably higher now than a even a few months ago (a fact I was made painfully aware of last weekend) and it seems that most of the old 2007/08 stock has now gone and the new stuff is costing the retailers much, much more. This will translate into even lower sales which is likely to continue to impact exports from Japan and the Far East.
As mentioned on Friday we needed the USD/JPY to close above 100 as this level seems to act as a spring board for extension moves. This it duly did and this morning we are well up o the pre-weekend close. There is volume resistance up to the 102.70 region and then the major two year downward trend line, currently at 103.00, but if the buyers can pull the crossrate over these we may be looking at clear air up to the 110 levels.
The Euro seems to be struggling to keep up with the pounds impetus but is still the second strongest of the majors over the last week or so. Against the dollar we are under the long term resistance which is currently around 136.20. at 135.30-135.32 now the is room to the upside but it must be noted that the cross seems to be making hard work of making further gains against the greenback. The easiest direction may be about to revert to the downside.
And finally Gold has broken the massive 890 support this morning. Traders will be looking to see it close under the level but the odds seem to be growing longer against a renewed attack on the $1000 level. On the other hand, although at 880.4-880.8 this morning it is easy to call for further weakness, if the equity markets start to weaken again there s every chance that Gold will regain its lustre. Both assets seem to be inextricably contra-entwined.
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