A bit awkward this morning as we start the week off right on (or around) the major support levels in the FTSE, Dow, S&P and Dax (4200, 8250, 890, and 4650 respectively).
As we have not actually decisively broken through on any of these levels (yet) clients are getting in on the support in huge numbers and are buying anything in sight. This is the first time in a while that every major index is in the same position and while I can understand the attraction to try to get in on yet another bounce from support I fear that this time might be one to dodge.
The news starting to drift out of the cracks is not as hopeful as some might be saying and, with so many economists all grasping hold of the tendrils of growth so as to be able to say (in a years time) that they were in at the start, we must continue to be cautious of getting too ahead of ourselves.
Early European action is almost certain to have a pop at the support but it will be the reaction of the US at around 13.30 this afternoon that will be the most critical. The Dow is being called almost 70 points off at the moment but it must be remembered that the States really, really, hates the European session dictating events. Time and again we have seen what appears to be a decisive move in the Euro session only for it to be reversed Stateside (even if only temporarily to get the market back to the closing levels in the US the night before).
Finally the Government is starting to admit that the ‘sainted’ public sector will have to endure some pain in the future but one fears that the only reason for this turnaround admission is because of the recent opinion polls showing that 75pc of the UK population thought that cuts were necessary. Sticking by the outright lie that spending would continue to increase was actually costing Labour support as no-one believed them. Contrarily most thought that 'Our Gordon' was only saying this to save votes. Once again the UK is being ruled by opinion polls and PR. This yet again shows up the weakness of the current UK political situation. It seems that the measure of success for parliament is not that they have done a good job but that they have been re-elected. Gordon Brown would seem to be willing to do anything, including ruining the finances of the nation, in an attempt to win next year.
Unfortunately for the UK the cupboard is bare and while most nations will be able to boost spending to aid their recovery Britain has no such resources. Not only this but what ammo we actually had has been wasted over the last year in a variety of “Quantative Easing” measures. Conversely Europe has been (and continues to be) willing to ride much of the downturn, in the face of fierce domestic ire, so that they will have the money available to aid the recovery when it arrives. There is a big difference here. Spending money to save defunct businesses is a waste of time and effort, helping the survivors is the best use of finances.
Interestingly the Pound is yet again under the cosh as the realities of the future start to hit home. To regain control of public sector spending we will have to do one of two things. Either inflate our way out thus devaluing the debt (a favourite route of various UK governments) or wear a very painful hair shirt for a few years. The first will mean a weak pound for a huge variety of reasons and the second will eeerrr… also probably mean a weak pound (at least initially) as interest rates remain lower than contemparies. Neither route looks particularly pleasant but (with my opinion of politicians) I know which way I think we will go. We have no Maggies or John Majors around these days. The easy route will seem to be the inflationary route unfortunately for politicians we are a much more mobile population these days than in the Seventies when only the upper and middle classes went abroad for their holidays. The level of the Pound versus the Euro and Dollar is of much more interest to the general populous than it ever has been. Harold Wilson's “Pound in your Pocket” speech would not gain much acceptance these days.
So, for today, the short term outlook is rather negative for virtually everything. Are we entering a second bear phase? The answer must be that the probabilities are gaining with each session.
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