Market Commentary 20th April 2009

Dealing continues to be trader friendly with few (actually no) break outs in any of the major indices, FX or commodities markets.

The attempt to the upside in the FTSE , Dax and S&P has run into the brick wall that is the 4125, 4700 and 875 levels respectively. These points all reflect previous failed moves to the upside this year. Our clients took the opportunity, late in Friday’s session, to sell into the highs and are looking comfortable at the moment.

Most of this week will be taken up with prognostication over the budget but in reality the effort of composition will probably not prove worthwhile. Even this mob of whitewash merchants will struggle to make a silk purse out of the sow’s ear of an economic situation that we find ourselves in.

While I would not dispute with the chancellor that there is a reasonable chance of the bottom being reached (in economic terms) in the last quarter of 2009 this is unlikely to filter through into the man on the street for many years to come. In reality most people in the UK have yet to actually feel any particular pain in the current economic environment. The current woes are a world away, on a personal level, from the poisonous and divisive early eighties or the three day week/energy crisis/inflation spikes of the seventies.

But by the end of 2009 and all through 2010 we may well see a return to the social upheaval that we experienced, briefly, in the rioting of the mid eighties. With virtually nothing left in the tank for sustained state spending boosts and the prospect of decades of ever higher public sector debt repayment burdens it is tempting to start wearing an ‘end of the world’ sandwich board.

The events of the recent few years will almost certainly mean an end to the era of credit and spend that has been the driving economic motor of the last fifteen years.

The markets are opening very quietly this morning with the FTSE unchanged at around the 4090 level having already had a go at a move lower in very early action but with the banks continuing to look better value there is presumably appetite for another attempt to the upside. Whether it succeeds or not is another matter.

On the FX front the pound has taken the failure to hold above 1.5000 vs the dollar very badly and we are slipping even further in this morning’s session. Cable is now down at 1.4651 off 130 pips already and, while the euro is not exactly surging either, the four day attempt for the GBP/EUR cross to get through 1.1375 has also given up with a vengeance.

Slipping back to 1.1260 as I write. On the plus side Sterling is still in a short term uptrend scenario and dealers are still picking up longs on these lower levels. 1.1250 vs the euro seems to be an important support so Sterling buyers will probably be more in evidence at current prices than sellers but many eyes will be focussed on any potential break lower.

More press comment from Gold bugs forecasting prices up at $1500 in the longer term but, in reality, the market looks tired at current levels. For all of the technical and fundamental reasons for higher prices in the yellow metal we continue to run out of steam above $900.

In the short term chart technicals favour the down side and the failure of the recent bounce from the low 860’s to break back into the higher trading range above 900 (or hold above the critical 890 support/resistance) is weighing on the market. Since the brief February move above 1000 we have seen a slow drain in prices and our clients seem less confident in precious metals than for some considerable time. There is still very solid support almost all the way down to 845 but a breach and close below here might open the market up for a sharp shift into the 700’s. On the other hand, of course, any particularly bad economic news will add to the ‘flight to quality’ argument.

It is unpalatable to say it but most markets (in whatever sector) look pretty fairly valued at current levels and any break out attempts just do not have enough impetus behind them to gain traction. For range traders the current situation remains a great opportunity to pick up small profits with less risk than in times past (but watch out for the technical levels)

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Simon Denham is COO of London Capital Group and Capital Spreads. We do not endorse the information and analysis available in this comment and it is provided purely for information purposes only and is delivered as a personal view by the writer. Under no circumstances is the information in this comment to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. The investments referred to herein may not be suitable investments for all persons accessing this page. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. We accept no liability whatsoever for any direct or consequential loss arising from use of the information on this web page. Please see our Terms and Conditions.

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