Pound up, Oil down and the markets are in the middle

Bets in the City / Simon Denham / 18 November 2008 / Leave a comment

Daily View - 18th November 2008

Thank you to the world regulators for the "protection" afforded by the short selling ban. The attempt to blame 'Hedge Funds' and 'Shorters' for the implosion of financial stocks is now shown to be hot air and misdirection of blame that it always was.

Yesterday Allied Irish, Anglo Irish, Bank of Ireland, Barclays, Lloyds, RBS and, yes, even Santander hit their all time lows. This is two full months since the Short Selling ban came into force and most Bank stocks have more than halved since that date. In fact the only reason that HBOS is not a member of the list is because their share price is now propped up a bit by the link to that of Lloyds.

On the 19th Sep (for that was the moment) Barclays hit 428p (now 154), Lloyds 331p (now 149), Allied Irish €7.52 (now 2.62) etc. etc. The political (for that is what the entire fiasco really was) move to hamper market liquidity has done nothing but give false hope to legions of investors who would have been better instructed to listen to the shorters. Perhaps I am being slightly unfair to the regulators in that there might have been a certain sense of "ok, if you really think that Shorting destabilises the markets we will agree (under pressure) to banning it and then see what good it does". As an object lesson to politicians on the workings of 'the market' it could not have been clearer.

The market this morning is being called lower once again at around 4110 off 25 from yesterday but this is rather unfortunate given that three of the reporting companies this morning, ICAP, Carphone and Burberry have rather done us proud whilst three have disappointed Lonmin, Enterprise and Easy Jet.

ICAP, in particular, has rather put one in the eye of Morgan Stanley who downgraded the stock all of 5 days ago (causing a bit of a sell off!). I did wonder at the time whether the analyst concerned was actually involved in the markets or was spending rather too much time at one of Enterprise Inn's hostelries. High volatility is always good for brokers and a weak pound is particularly good for UK based ones. Not only this but the huge issuance of Government (rather than corporate) debt over the next few years should keep interest rate markets (a major portion of ICAP's business), in all their guises, at the forefront of business for some time. ICAP's business model is very much revenue/cost driven and lower income generally means lower costs as well. Many Brokers are paid by result nowadays with very low base salaries.

The pound is finding a bit of strength from somewhere as it tries to recoup some of the heavy losses of the last few weeks. We have now pushed up and over the 1.50 mark vs the dollar for the first time since the break through last week and it seems that weak shorts (for once) are being squeezed. The price is now 1.5082-1.5085 and, to be honest there is little in the way of resistance or support around the current price. The short term falling trend line is now at around 1.5245 which also happens to be, almost exactly, the previous low from back in October before we sold off last week. This might make for a tempting target for the bear squeezers but punters should beware false rallies. There is no doubt that the pound is in a downward phase and FX markets love their trends.

Oil continues to weaken with the January Brent contract hitting new lows yesterday at 52.02 (not quite as low as the December contract reached, 50.60 but there was fully 2 dollars between the two delivery months). We open this morning at 52.55-52.60 and the news of a tanker hijacking does not seem to have helped at all. Not only the UK but also many other nations are desperate for cash and this does not bode well for the Oil producers in the medium term. Whilst the price is unlikely to dive to the eighties lows neither is it likely to strike out for the highs any time soon.

Traders continue to try to bottom pick markets and this has increasingly become an expensive pastime. With each individual sector seemingly taking their turn to move violently in one direction or the other the appeal of just sitting back with a coffee and watching the joys of daytime television is becoming increasingly attractive (things have got that bad!).

The Tradefair Spread Betting Team