Has the bottom been and gone?
Bets in the City 
/ Simon Denham / 09 December 2008 / Leave a comment
Daily View - 9th December 2008
Mr Obama's exhortations to spend, spend, spend had the desired effect on the markets yesterday but it takes more than rhetoric to actually get things done and, anyway, the wisdom of spending more (presumably on borrowed money) to get you out of a hole that has, arguably, been dug by excessively loose lending policies in the first place might appear injudicious.
The perception that a bottom might have temporarily been reached was strengthened by yesterday's rally and we now have the more comforting feeling that the rallies are becoming as strong as the falls. The break out from the short term falling trend line in the FTSE 100 on the open yesterday might be an indication that markets are, if not into a bull run, possibly out of the current bear phase. Traders need to keep the move going though and any sustained failure to make headway through 4300 would weigh significantly on confidence. The last rally peaked at almost 4700, fully 450 points above the opening call on the index this morning at around 4250.
The huge liquidity additions promised by the various nation states over the past month or so will take a very long time to either start up and, once begun, to have an impact. It will probably take us well into the second half of '09 before success or failure can be measured. Unfortunately, call me cynical if you like, if this project is temporarily successful it will weaken the argument of future governments when trying to cut back on state spending. Britain may well be in hock to the future for the rest of my working life.
As mentioned the open is expected to be around 4250 but dealers seem unenthused either to buy or sell at the current levels. Clients were short overnight, but not significantly so, and do not seem inclined to take profits on the weaker opening. The failure of the Dow to hold above 9000 in active dealing yesterday evening may cause some profit taking in Europe but it must be pointed out that even if we had made it over the 9K mark we would still be 2500 points below the start of the current bear move at the beginning of September.
The immediate effect of the President elect's words was, not surprisingly, a weakening in the dollar but this now seems to have played out and Sterling is once again the whipping boy on the exchanges. Versus the Euro the pound is looking particularly sick as we fail to make any headway in attempts to escape from the current 1.15 region. In recent days the cross has made a series of attempts to move back above 1.1625 and to get below 1.1450, all to no avail but, it must be said that, given how far the currency has fallen in the last year you would have thought that there might be the odd buyer out there. The fact that sterling keeps slipping from ledge to ledge with no real attempts to step 'up' does not bode well for longer term stability.
Virtually every chart you look at shows the pound in long term decline and now that the artificial prop of 'high' interest rates has been removed it is difficult to see what would tempt a long term buyer to contemplate a sterling long.
Oil bounced nicely as the conjunction of a bit of weakness in the dollar and optimism for the futures had its effect. Under 40 bucks much production becomes unprofitable and some companies may just shut off the flow and await better times if they are able to do so! Of course many contracts will specify volumes that must be pumped (nation states need the tax revenue and "damn the price") so the leeway to just turn taps off is often not available. The news that Companies are stock piling crude will probably keep a cap on prices for some time.
Lots of numbers this morning out of the UK Industrial/Manufacturing production numbers possible the most important (although the trade number will probably get the headlines). With the pound so weak it is becoming slightly alarming that manufacturing is suffering so badly as theoretically a falling domestic currency should be a boost for exports AND a competitive shot in the arm for domestic consumption versus more costly foreign competition. Unfortunately expectations are for another fall in output of around 0.5pc for October. Grim times indeed. Of course manufacturing is now only about 13pc of our economy but if even this sector cannot make headway the omens are not good on the employment front.
Trade deficit is expected to come in at about minus 4 billion (about 70 quid for every man, woman and child in just one month). Although, given how many beemers, mercs and Toyotas you see around this number seems quite small!
The Tradefair Spread Betting Team
