Banks remain in the spotlight as Lloyds finally relinquishes almost total control to the government after trying to resist such a huge part of the bank falling under state control. There is no question that HBOS would not have been able to survive alone and the move to merge it with Lloyds was simply a matter of shifting a banking problem from one side of the table to the other. The HBOS burden has managed to almost completely destroy any shareholder value left in the firm and now the bank is being forced to give out more bad loans in a bid to get the housing market and UK economy moving again. Lloyds’ shares are expected to decline sharply on the open this morning as investors exit what is quickly becoming an almost worthless stock and fears over their toxic loan book augment. It was almost inevitable that the group was going to end up with such a huge amount of its assets insured in the toxic assets scheme. The only real good thing to have come from the whole of this dire situation is that we have now drawn a line in the sand and one could almost go as far as to say that the banking sector is through the worst, although there could well be the odd skeleton lurking in the cupboard.
Despite a decline in Asian indices this morning the FTSE is expected to commence this week in positive territory, albeit only just with our call for the FTSE 100 to open up 10 points. In the US on Friday night Wall Street provided yet another last minute flurry of activity as the Dow surged 200 points off its low to post a gain on the day. The past few weeks has seen many of these sorts of moves from US indices in both directions with either a very sharp fall from its highs or a big rally from its lows.
So Friday’s move indicates that there are buyers still out there although it could almost certainly be down to some short covering as the momentum didn’t follow through to Asian stocks last night. The overall technical picture for indices is still incredibly weak with lower lows and lower highs setting the trend, it looks impossible to be able to see any sort of bottom in the markets. The FTSE 100 is just about the strongest index at the moment and has formed a support line around and just below the 3500 mark and every time we’ve dipped to this level it has attracted a wave of buyers. With all the headlines citing new multi year lows clients have being seeing this as a buying opportunity and remain long the FTSE, holding onto their longs for the last few days but when you look at the other indices it’s difficult to get bullish.
Today is quiet in the way of corporate and economic data and the earnings season is drawing to a close so little impetus is expected on that front. With the US having changed their clocks over the week end everything for them starts an hour earlier until Europe changes its clocks in a couple of weeks time.
Sterling is a little weaker this morning as the dollar drives it back towards the 1.4000 level. Friday saw cable recover a little to 1.4300 but this was swiftly rejected by the sterling bears. Support is seen around 1.3995 and then 1.3950 if that is taken out. For the euro things also look weak and support is seen around 1.2557 then 1.2525. This morning bellows to the dollar as it also heads back towards 99.00 against the yen.
Gold is a little weaker as a result of the dollar’s strength and on the hourly chart things look quite weak. Whilst support has pushed the yellow metal back to the mid 900s range another run up to $1000 is required quite soon in order to keep the bulls interested. A big double top has formed in this market and momentum may have dried up, but prices will have to fall below $900 before the bears can be more confident that they’re back in control.
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