Markets Ignore Doom and Gloom

Financial Spread Betting News

Markets Ignore Doom and Gloom 

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.

By Simon Denham

CEO Capital Spreads

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