End of Day Defining Trading
Daily Financial Analysis 
/ Simon Denham / 05 March 2009 / Leave a comment
Daily Comment Thursday 5th March
The squeeze higher yesterday lasted right up to the last hour in New York but then, as seems to be quite normal these days, it was the last forty minutes of trading which finally defined the day. The high print at 6984 (just shy of 7000) was too much and investors blinked in the sunlight and lost their nerve. The subsequent end to the day saw us drop 140 points, bad but still above the close on Monday, 150 up on the day, and possibly giving us a pause for breath after the last 17 trading sessions of deep depression.
The FTSE is opening 35 lower at 3610 and the average yield on a FTSE 100 stock is now 6.9pc. Even if every company in the index halved their payouts this would still be 2.5pc above current rates and possibly 3pc by this afternoon as, (you've guessed it) its MPC day again! Once more we put ourselves into the hands of a group of people who clean missed the signs of any slow down and (if we all remember) were still trying to raise rates towards the end of 2007. Traders will be sitting on their hands awaiting news from the ECB and the BOE not just over the base rate fixing but also, possibly, news of the long awaited liquidity injection proposals.
Printing money is just about the last throw of the dice and not a solution that can be considered 'prudent' in any definition of the word. For all of the bad news swirling around, this downturn seems to be quite heavily pointed at the behemoths of the planet the big industrials and financials. Yes, there is fear over job security, but the overriding impression at the moment is that it is the 'big ticket' items that are suffering as people decide that the car can last another year and maybe the American Freezer can wait till later. Walking back home last night I played a game to spot an '09' number plate (4 days into the start date) unfortunately even my poor eyesight was unable to pick one out so after a while I widened the search to find a '58' with similarly poor results.
The merry go round of consumerism driving growth seems to have temporarily fallen off the circuit! Whether printing more folding stuff will get us back into the forecourts is a very difficult call to make and I am quite pleased that my remit is just to sit and comment rather than get out and do.
As mentioned there is much talk these days on the returns that can be made from quite reasonable stocks but investors are not being tempted. The feeling surrounding the markets these days is so grim and valuations so low that the big players would rather miss out on the start of any major rally rather than get burnt any more. Pensions, insurance funds, fund managers, even private equity are watching destruction of current and future returns of such magnitude that it is difficult now to see how anyone retiring in the next ten years is going to have anything remotely close to current income to live on. My best suggestion is to go and work for the government for a while and get on the Public sector retirement gravy train.
The yen continues to weaken and we are now right at the resistance level target for GBP/JPY mentioned in yesterday's missive. 141.00-142.00 has proved a bit of a barrier to any rally for the Pound since early December and we are now having another go as I write. Any successful break out above 142.00 might well give the bulls fresh legs for the wide open spaces firstly towards 147.00 and then 160.00. Unfortunately for this scenario there is also the downside. If we fail to make headway once again (we have already failed three times) then the way down might be the direction of choice (and as we know when Sterling weakens these days its does so with a bang).
Gold was looking very weak yesterday (briefly printing under $900 at around seven thirty last night) before the aforementioned weakness in the states gave comfort and we have now recovered to around $911. It is slightly unnerving that the market needs weakness everywhere else to move higher and this does not, to me, seem a very valid position of strength to argue. Yes, indices are weak but at some point they will (presumably) stabilise and then investors will be looking at zero yield (on the yellow metal) versus corporate bond returns of 6 to 16pc and divvy return of over 6pc. The argument for precious metals only works if the world really does go to hell in a hand cart, any other scenario and it is a costly asset to sit on. That said we are looking very comfortable at current values and we are really only going to seriously worry of the price slips below the six month trendline, currently at around $870.
Oil remains in the 40 to 50 buck trading range and at the moment seems in no hurry to threaten either side. Brent at 45.37-45.42 is off 70c this morning but this is after two strong days of higher prices. Forward prices continue to be considerably higher with March 2010 delivery over 53 bucks so the market still believes in higher prices but is still struggling to swallow the current excess supply.
The squeeze higher yesterday lasted right up to the last hour in New York but then, as seems to be quite normal these days, it was the last forty minutes of trading which finally defined the day. The high print at 6984 (just shy of 7000) was too much and investors blinked in the sunlight and lost their nerve. The subsequent end to the day saw us drop 140 points, bad but still above the close on Monday, 150 up on the day, and possibly giving us a pause for breath after the last 17 trading sessions of deep depression.
The FTSE is opening 35 lower at 3610 and the average yield on a FTSE 100 stock is now 6.9pc. Even if every company in the index halved their payouts this would still be 2.5pc above current rates and possibly 3pc by this afternoon as, (you've guessed it) its MPC day again! Once more we put ourselves into the hands of a group of people who clean missed the signs of any slow down and (if we all remember) were still trying to raise rates towards the end of 2007. Traders will be sitting on their hands awaiting news from the ECB and the BOE not just over the base rate fixing but also, possibly, news of the long awaited liquidity injection proposals.
Printing money is just about the last throw of the dice and not a solution that can be considered 'prudent' in any definition of the word. For all of the bad news swirling around, this downturn seems to be quite heavily pointed at the behemoths of the planet the big industrials and financials. Yes, there is fear over job security, but the overriding impression at the moment is that it is the 'big ticket' items that are suffering as people decide that the car can last another year and maybe the American Freezer can wait till later. Walking back home last night I played a game to spot an '09' number plate (4 days into the start date) unfortunately even my poor eyesight was unable to pick one out so after a while I widened the search to find a '58' with similarly poor results.
The merry go round of consumerism driving growth seems to have temporarily fallen off the circuit! Whether printing more folding stuff will get us back into the forecourts is a very difficult call to make and I am quite pleased that my remit is just to sit and comment rather than get out and do.
As mentioned there is much talk these days on the returns that can be made from quite reasonable stocks but investors are not being tempted. The feeling surrounding the markets these days is so grim and valuations so low that the big players would rather miss out on the start of any major rally rather than get burnt any more. Pensions, insurance funds, fund managers, even private equity are watching destruction of current and future returns of such magnitude that it is difficult now to see how anyone retiring in the next ten years is going to have anything remotely close to current income to live on. My best suggestion is to go and work for the government for a while and get on the Public sector retirement gravy train.
The yen continues to weaken and we are now right at the resistance level target for GBP/JPY mentioned in yesterday's missive. 141.00-142.00 has proved a bit of a barrier to any rally for the Pound since early December and we are now having another go as I write. Any successful break out above 142.00 might well give the bulls fresh legs for the wide open spaces firstly towards 147.00 and then 160.00. Unfortunately for this scenario there is also the downside. If we fail to make headway once again (we have already failed three times) then the way down might be the direction of choice (and as we know when Sterling weakens these days its does so with a bang).
Gold was looking very weak yesterday (briefly printing under $900 at around seven thirty last night) before the aforementioned weakness in the states gave comfort and we have now recovered to around $911. It is slightly unnerving that the market needs weakness everywhere else to move higher and this does not, to me, seem a very valid position of strength to argue. Yes, indices are weak but at some point they will (presumably) stabilise and then investors will be looking at zero yield (on the yellow metal) versus corporate bond returns of 6 to 16pc and divvy return of over 6pc. The argument for precious metals only works if the world really does go to hell in a hand cart, any other scenario and it is a costly asset to sit on. That said we are looking very comfortable at current values and we are really only going to seriously worry of the price slips below the six month trendline, currently at around $870.
Oil remains in the 40 to 50 buck trading range and at the moment seems in no hurry to threaten either side. Brent at 45.37-45.42 is off 70c this morning but this is after two strong days of higher prices. Forward prices continue to be considerably higher with March 2010 delivery over 53 bucks so the market still believes in higher prices but is still struggling to swallow the current excess supply.
