Despite
the doom and gloom surrounding the economy the markets are in recovery
mode at the moment and seem to be wishing on a prayer that European
leaders are going to find the answer in the coming weeks. The
doom and gloom is so bad that even the UK's biggest retailer is feeling
the pinch. Heavy discounting by Tesco in order to get
customers
has squeezed their margins significantly and more and more shoppers are
trading down to value brands. Food is usually one of the
areas
where people can stomach (excuse the pun) the odd price rise, but it is
unsurprising to see that even this part of people's everyday need is
seeing a squeeze. With prices going up everywhere, the drop
in
inflation that the Bank of England has predicted for so long has failed
to materialise and so consumers are really feeling it where it
hurts. Yesterday's GDP number which was revised downwards
showed
a shock drop in consumer spending and unfortunately the outlook isn't
all that bright either. Everywhere is slowing down from
Europe to
the US and onto China and it is the lack of confidence that is causing
such a drag on growth.
Equity markets on the other hand are
trying to pre-empt a possible recovery by rallying from their
lows. Markets are always forward looking and so not only do
many
investors see plenty of bargain stocks out there but they see possibly
the buy of the century if Europe's problems are taken out of the
equation. Noises out of Europe seem to have a greater sense
of
urgency now and the realisation that a really big deal to save the
banking sector needs to be done in order to avoid potential disaster if
(although the majority are now saying "when") there is a sovereign
default.
The FTSE is at 5160 at the time of writing.
Who would have thought on Monday or even Tuesday that we would be back
at this level so quickly. The buyers are still there and once
again support around 5000 has kept the FTSE afloat.
Today is
all about central bank decisions and once again no action is expected
from either the BOE or the ECB, however there is a chance that one
might make a move today. If not the likelihood of a fresh
round
of printing from the BOE and an interest rate cut by the ECB next month
is far greater.
FX traders were tentative yesterday in
anticipation for today's ECB meeting on interest rates. The
speculation is that rates could be cut, which could signal weakness and
further misery for the euro. The yen and dollar are still the
preferred choice of safe haven for traders at the moment and there is
no reason for this to change anytime soon. Currently trading
at
1.3339 the pair has broken through a rising trend line, which is a
negative signal. We could expect to see possible weakness
here,
although fundamentally, the news coming from the ECB meeting later is
likely to have some sort of effect as well.
With the
commodity markets bouncing back and equity markets showing a good
recovery, investors were keen to help push gold higher as the feel good
factor took over the markets. The level of 1600.0 looks like it is in
place to provide a good support for the yellow brick and the few
attempts to break below this were brushed off. In the end,
the
precious metal rallied 16 bucks to 1641.4, but still looks set for a
period of consolidation within the 1600.0 - 1675.0 range. At time of
writing, gold is sitting at 1646.3.
The unexpected decline
in crude oil inventories yesterday set the path for a rise in the black
stuff's price. The fact it came in on the back of a drop in
crude
imports was of little importance to the bulls as the data was
accompanied by the surprisingly better than expected initial jobless
claim figure. To generously add to the rally was the rebound
in
equities, providing solid direction for the energy complex.
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