Daily Financial Analysis / Nick Smith / 12 May 2009 / Leave a comment

Daily Comment Tuesday 12th May

The test for the markets now will be whether they are able to attract bulls to keep pushing the market higher. Yesterday the most traded stocks by volume were all decliners and made up of banks, energy and telecoms showing quite a broad sell off. There was a clear move into defensives with drug makers and utilities topping the leader board, but some losers fought back well with HSBC clawing back all of it's loses to actually end up half a pence in the black. The market seems to have reached a level where we may sit whilst investors contemplate the next move and access whether the momentum is there to take us higher. Clients remain sellers so clearly they are of the view that we're not going to spend too much longer around here. It is difficult not to agree with them, despite many analysts remaining bullish, as we've seen such a good run from the lows and it's difficult to see how prices can carry on much higher.

In Asian trade overnight the so called "appetite for risk" caused prices to dip so this morning we're calling the FTSE to open 15 points lower at 4410 after a poor performance in the US overnight. Despite yet more encouraging figures that the housing market is reaching a bottom and that UK retail sales jumped 4.6% in April, the market is brushing the news aside. Support in the FTSE is seen around 4400, where we bounced off last Friday, 4360 and then 4305 and resistance is the recent high around 4500.

On the economic data front things are a little more exciting today with German inflation data already having shown an as expected rise from 0.5% to 0.7% year on year. Later this morning the UK releases industrial production and trade balance numbers.

Currencies made some interesting moves yesterday with the dollar proving favourable over the euro and sterling before giving back some of its gains. The net effect was further weakness for GBP/EUR which suffered more downside to touch 1.1100, before bouncing off support seen around there, however this morning the cross rate is trading back at 1.1105. There still seems to be this appetite for risk in the currency markets with the traditional safe haven US dollar struggling against other currencies. However, if the bias shifts in favour of the bears and we see lower equity prices one would expect the dollar to benefit.

Gold (yawn!) once again drifted sideways and a little lower to $910 with little assistance from currency markets and the absence of any meaningful economic data. $920 remains the near term hurdle and clients remain long of the precious metal. Trading should be a little more exciting today as we see the release of more data and at the time of writing we at $913.

For Brent crude oil $58 is proving a bit of a hurdle and the moves seem to be mirroring the equity market at the moment as yesterday saw some profit taking too. It is bizarre just how similar the hourly charts for the FTSE and Brent are at the moment. This morning Brent is at $57.20 and if crude prices continue their upward trend then renewed concerns about the effect on inflation will resurface. Already I've noticed how many petrol stations have moved back to the 100p market for their fuel.