The end of an era on the high street

Bets in the City / Simon Denham / 27 November 2008 / Leave a comment

Daily View - 27th November 2008

Times are tough on the high street and two of the better known brands have announced 'time gentlemen please' overnight. This is, of course, terrible news for a large swathe of employees and, short term, for competitors on the high street as an effective fire sale of stock drives prices even lower over the run in to Christmas.

Long term, though, the picture is not so clear. The removal of a wounded beast from the herd, whilst tough on the rest immediately should be beneficial longer term and even though 31,000 Woolies staff are nervously awaiting events the majority of stores are probably worth saving as are the jobs. MFI's brief life after the last 'shut down' a few months ago was always a matter of hope over expectation and the money that was presumably lent to the managers to float such a wreck was (we hope) well covered by guarantee.

Events in Mumbai overnight may well shadow the markets today as the grim hand of extremism raises itself once more. While these attacks do not hold the same impact as a 9/11 or Madrid Bomb outrage they remind everyone that it can take very little to damage, or even ruin, confidence in a country. I can see the holiday cancellation lists for India getting longer and longer as I write. Business plans to outsource to the emerging markets will take note.

Thailand is descending into organised chaos as the army flexes its muscles again but the reaction of the markets (down only a touch in the last few days) shows that investors are not spooked. And even China has seen small pockets of rioting as jobs disappear. The problem with 7pc growth when you have an economy as young as the PRC is that this can be achieved with productivity gains which is all very well for business leaders but not much use to the huge numbers of Graduates and Rural migrants looking for work.

And so we turn to the FTSE and what we can expect this morning. Last night the Dow put on 250 points which helped to bolster the FTSE after a bit of a nervous day. The senior UK index was heavily down twice during the session and quite nice up twice as well before following the US in late action after the official close. While it is easy to be negative it must be said that the index has now bounced off the 3675 lows twice, (Oct 21 and Nov 20), and quite healthily both times. It is tempting to wonder if we might have reached a plateau for the time being and many commentators have mentioned over the last few months that there are stocks out there with low, or no, debt, healthy dividend cover and solid business models (even in a recession). Picking a bottom for anything is a mugs game but small investment decisions can be made even in the grimmest of times.

Opening quotes are for the market to open up around 40 points at 4190 and this is good but not has nice as the estimate late last night where we were calling for 4250(!) this morning. Trading remains very busy across all our platforms and there does seem to be a more confident air around. If people stop going shopping they will, presumably, be saving. Some of those savings may well find their way into the stock markets (you never know). This is probably the most optimistic note I have written for many, many months and while the actual economy is likely to continue to contract and the headlines will get a lot, lot, worse this does not necessarily mean continued weakness in the equity markets. This having been said it is not a time for leaping in with both feet!

Currency markets are becoming a bit dollar unfriendly again but versus the Euro we need to break above 1.3070 to confirm a resurgence in the European currency. With the price currently at 1.2886-1.2888 we are some way from this mark. What we can say is that there is massive support between 1.2320 and 1.2400 as we have bobbed along this line for about a month now. A break of this would be quite surprising and could trigger heavy selling pressure. For sterling the resistance level is at 1.5500 and 1.5450 both of which are bringing out sellers. The current price of 1.5365-1.5368 seems comfortable for the moment but there is room for huge moves to the upside while still retaining a bearish trend. Theoretically we could reach up to 1.90 and still be bearish!

Commodities are settling into their new levels as well. Oil (Brent) seems undecided as to whether to break back above 55 or back below 50. Punters seem happy to go with whatever flow is currently in vogue and we are seeing quick switches from long to short on a moments notice.

Gold, having broken back above 800 is also pausing for breathe. 822 seems a top at the moment with 807 a support. But this is a very narrow range for such a volatile instrument so we may see an attempt on either side through this session.

The Tradefair Spread Betting Team