The rally continues for stock markets led by US indices which are basking in their own mini recovery.
Things couldn’t be better there for the incumbent President ahead of elections in November as only a year ago it looked like Obama was one of the most unpopular people in the country.
Now that unemployment in the US is falling, the economy is growing and looks set to avoid a double dip recession and stock markets are rallying this will help confidence across the board, almost certainly guaranteeing his re-election. The shorter than normal FOMC meeting last night struck a bullish tone and fuelled the rally in the Dow which was already posting decent gains early on in the session. The recent rally can be attributed to the ongoing promise of stimulus from central banks should it be needed and whilst last night didn’t open the door for QE3 in the US, investors are happy that they’ve seen it before and they’ll see it again if growth starts to take a dip. We know that interest rates across the pond are going to remain at their record low levels into 2014 and that policy is likely to rub off over here where it seems inconceivable that when inflation is falling, the BOE or ECB will want to hike interest rates.
So the Dow’s rally not only took it firmly above and beyond the 13000 mark, but it recorded its highest level since 2007. That really is remarkable as it takes us back to pre Lehman times. This morning we are seeing this bullishness translate into gains for European equity markets as the FTSE has opened up some 20 points at 5975. Our quote even hit as high as 6000 and this will be the next target for the bulls. The impressive recovery by indices since their little retracement last week has brought those resistance levels and highs for the year back in to focus. The 5950-75 area has been the big hurdle for the FTSE and so as we trade around and above here the focus is on the next targets of 6000, 6030/45 and then 6100. To the downside support is seen at 5950 the near term upward trend line, 5915 and then 5870/50.
Quite a bit of data to get our teeth into today with unemployment numbers from the UK this morning where the data is expected to show tentative signs that the UK labour market continues to stabilise. Whilst we’re a long way off from the sort of job creation and falling unemployment that the US is currently enjoying, there are indications from other employment surveys that there are jobs in the services and manufacturing sectors which just remain in expansion mode. The thing that is counter balancing this is the public sector job cuts and so claimant counts are due to rise by some 6000 but the overall rate is expected to stay at 8.4%, still at its highest level since 1995.
Other data includes EU industrial production which is expected to rise as overall the manufacturing looks to be stabilising, however it’s a very different story for both core Europe and the periphery. Then later at lunch time the US releases its current account balance.
The recent dollar strength has really been the theme of FX markets recently. This has largely been to the detriment of the euro and Yen where EUR/USD has been grinding lower and USD/JPY has been adding to its impressive rally. As the equity markets have been rallying with risk appetite increasing in the past we would expect this to translate into dollar weakness, however this has not been the case recently and the dollar’s recovery indicates a shift in sentiment towards the US. The single currency is still holding onto the 1.3000 level trading at 1.3040 this morning but the bears might want to test the recent lows around 1.2980. For USD/JPY which is at 83.30 at the time of writing 83.50 and 83.75 are the next targets for the bulls.
As a result of the continued recovery of the dollar gold has really suffered and is well below the 1700 level at 1668 this morning. These are the recent lows and so bulls will be hoping to see some support for the yellow brick, but for as long as the Federal Reserve keeps saying that QE3 is on the back burner, the sentiment towards gold will struggle to get any more bullish. Now back below its 200 day moving average things are starting to look a little bearish for the metal.