Bets in the City / Nick Smith / 23 December 2008 / Leave a comment

Daily View - 22nd December 2008

Whilst December has kept with history and so far posted a positive month, rising some 6%, we are still off the highs and resistance around 4400 to 4500. The trading ranges of the last few days have been incredibly small which is not surprising as investors seem to have shut up shop ahead of the Christmas holidays and New Year. As 2008 draws to a close and we all have time to reflect on the year that's just gone one of the only things that is certain is that no one will want 2008 to be repeated. The sheer pace of the financial crisis and its effect on financial markets has taken everyone by surprise and it can also be said that the recovery, when it comes, will not be as quick.

Many people have commented that 2009 will bring a rally in the first quarter, with the majority of those bulls believing that this will also be a bear market bounce rather than a full turnaround in the fortunes of the economy and equity markets. It's difficult to foresee any rise in equity markets being sustained considering the doom expected for the year ahead and what investors are most weary of is any prospect of deflation. Equity markets haven't priced this is yet and if inflation does completely disappear, this will cause unemployment beyond what anyone was thought was possible and we could easily take out the lows set in October this year.

But let's not be too gloomy about the year ahead as after all it is Christmas and you can't get too much more negative about the global economy than the papers are already reporting. Also, the US's new President will take office and we know what effect his win had on the market. The Obama bounce recorded a 15% rise in the S P 500 and remembering the euphoria surrounding his election this could rub off positively once again in the New Year.

Today is expected to be quiet once again and despite earlier calls for the FTSE to open in the red we are in the black this morning up some 30 points. The thin volumes are having their usual effect as it can take just one big buyer positioning themselves for year end which will shift the market dramatically in one direction. A break of 4300 will pave the way to test the near term resistance of 4400 to 4500. Support is seen at 4200 although with these thin volumes that could prove less resilient than normal.

Despite everyone winding up pretty much for the rest of the year we mustn't be complacent about the fact that the financial markets are still open and economic data is being released. Today we get final GDP numbers for both the UK and US. At 9h30 UK GDP is expected to post -0.5% M on M and 0.3% Y on Y with the US figures at 13h30 due to come in at -0.5%. Also this afternoon we get home sales data and Michigan confidence at 15h00.

The euro continues its climb against most majors although weakening a little in the last 15 minutes. Against sterling we're around 0.9400 and the dollar 1.4000 after posting its first monthly gain for quite a while. Big currency fluctuations are expected to remain throughout 2009 and whilst there are many interesting calls for big falls in the dollar and sterling it's important to remember the sort of bumpy ride that can occur along the way.

Very best wishes and a very Happy Christmas to you all!

The Tradefair Spread Betting Team