As we start another trading day for the FTSE we see headlines once again dominated by the eurozone.
Yesterday was dominated by news of other big European states coming under the spotlight with Italy almost being brushed to one side. Spain was a concern as their 10 year yield edged towards 7% but the real worry was France who’s bond auction saw their yields jump substantially. France’s banks continue to come under substantial selling pressure even though a shorting ban on their stocks is in place. Without agreement on how to increase the size of the EFSF bailout fund worries that Greece is going to default are rising and now the country is at a stage whereby they are going to have to rely on bailout money after bailout. There’s little chance that anyone will lend to Greece now, even if they are demanding over 20% because the fear is that they won’t just have to take a 50% write down now, but lose the whole of their investment.
This fear is slowing creeping through the markets and other countries such as Spain and Italy are being targeted. Italy really is too big to bail out so investors are crying out for action and that action needs to be fast. “Super” Mario needs to convince markets that he can restore confidence by reducing Italy’s borrowing and stimulating growth, meanwhile this so called firewall around Greece and increase to the EFSF needs to be put into action and here again, speed of is the essence. After so much talk in the past few weeks investors are getting frustrated with the stalling and slowly but surely punishing those European countries that are most vulnerable.
Our Dave meets with the German Chancellor today in order to try and save not just the City, but all other financial centres throughout Europe from the dreaded financial transaction tax in return for supporting a new European Union treaty expected next month. Merkel is calling for greater integration, which is enough to make the hairs on the back of any euro sceptic’s neck stand up, but if a deal can be struck to avoid taxes that will do nothing other than snuffle growth, this is a price worth paying.
The FTSE is taking a bit of a hammering this morning as the index continues what has been a very poor week. More crucially is that we are below the 5400 level which has served the index so well up to now, supporting the bulls and leading to several bounces back higher from around here, just as was the case yesterday. A very weak session from the US last night has led to this morning’s sell off and at the time of writing we are at 5375, in and around this support area. A break and close below this area could spell further weakness towards 5270 and then even the lows of the year around 4800, so in other words a serious mass sell off – ouch if that happens.
The euro has held up relatively well considering the weakness in the equity markets although it remains in the dog house compared to other currencies. EUR/USD is at 1.3500 at the time of writing having drifted lower in the past few days so from a technical point of view things look negative. Downside support over the near term is seen at 1.3425 and 1.3380 whilst upside resistance is seen at 1.3555 and 1.3600/40.
Sterling too has held up pretty well considering the weakness it suffered after the BOE’s growth downgrades and the poor unemployment data earlier in the week with GBP/EUR still managing to hold onto the 1.1700 level and cable is at 1.5785 at the time of writing.
Gold has really brunt the fingers of some clients as it saw a very sharp sell off yesterday taking the precious metal down to the 1720 area. There was even a big gap lower of some 100 points in yesterday’s jump down and it looks like a bit of profit taking is creeping in following hedge fund legend Paulson’s big liquidation of some big exposure he had to gold. For now the yellow brick has found support around 1720 and is at 1727 at the time of writing.
The sell off in risk assets has also affected crude oil with Brent dipping below 110 yesterday as the weakness in gold rubbed off on oil markets. This morning Brent is at 108.85.