No bad news is good news

Bets in the City / Simon Denham / 10 December 2008 / Leave a comment

Daily View - 10th Decmeber 2008

The yearend rally seems to be well on course as bad news no longer seems to shock. Even truly appalling numbers are no longer harming expectations and it is difficult to see any data that will, on its own, knock us back into a negative frame of mind. The numbers out yesterday on the UK economy were little short of disastrous (not least from a tax revenue view point) but the trade figures threw up a bit of an oddity. The Visible Trade deficit was an eye-watering 7.75bln but invisibles (effectively financial services) reduced the total deficit to 3.87bln. Given that the financial sector is apparently in complete disarray this is a rather unbelievable figure and is either an indication that the invisibles (which are generally earned in dollars, yen and euros) are increasing merely due to sterling weakness or may be in line for some adjustment.

The real shocker was the industrial output number at minus 1.4pc in just one month. The expectation of minus 0.5pc was bad enough but to have this almost trebled was not what was needed.

The markets though are focussing on the huge fiscal impulse promised by the incoming US administration. The prospect of Jam tomorrow to go with the jam and donuts 'today' of the last ten years has got investors salivating at the mouth eyeing valuations which appear to be at fire sale prices.

Whilst we have been commenting for a while on the fact that some judicious purchasing might be in order, the emphasis must be on the 'some' and the 'judicious'. There is a long dark tunnel to be travelled over the next 12 to 18 months and there will be several brickbats flying around to knock down the unwary or the over confident.

The FTSE is trading at around 40 points off this morning at around 4340 after the extension rally yesterday afternoon took us to almost 4400 on the close only for the US to sell off for the rest of the evening session. The Far East's move higher in the wee small hours saved the opening this morning but dealers continue trade the ranges and there was some solid selling as soon as we approached 4400 in early action on the opening bell. The Dow in particular seems to be a happy hunting ground with repeated 50 point ranges throughout yesterday's session helping even the most unfortunately entered position to get out at a reasonable level.

With Gold and Oil rallying from the lows of the last few days, as well, the bulls are finally having their day in the sun.

The markets that seem to be taking the brunt at the moment are the currencies, particularly in sterling. Trading versus the Euro and the Dollar has seen some solid sterling buying in recent days as dealers struggle to believe that the 'good old pound' can really slump quite so badly. Unfortunately for the bulls (whilst today's action is in their favour) the momentum is still definitely Sterling bearish with virtually every momentum and trend line indicator still showing renewed weakness. Of course the beauty about charting is in how often it is complete b****cks and the perversity of markets is often in the delight with which they turn against perceived wisdom. The pound has had a grim time of it and may have further to fall but there is a good chance that there may be a little rally to chase out weak shorts who have only recently joined the ride down.

Versus the dollar the 1.4660 level could prove crucial as even though we have traded through this level in the last month we have never actually managed to close below it. While we remain above this mark there is the potential for a sharp rally.

The Tradefair Spread Betting Team