Daily Financial Analysis / Simon Denham / 14 April 2009 / Leave a comment

Daily Comment Tuesday 14th April

Not much to go on over the long bank holiday and this is backed up by the opening calls on the FTSE and Dax this morning.

The FTSE is expected to open around 5 higher and the Dax 10 lower as the US markets oscillate around the 7950 to 8100 range. For most of the Major indices we are now in the constricted trading area which defined the mid Jan to mid Feb volume trading range. Reading the analysts comments we can see a sharp divide in opinion arising as half appear to think that we have seen the lows and that the remainder of the year will be a slow grind higher whilst the other half is convinced that the last month has merely been a dead cat bounce in a bear market. Obviously one side or the other has to be wrong but the current tooing and froing is making for very nice trading opportunities for many range players.

From a personal viewpoint the trains into the city seem to be getting emptier and emptier (admittedly this is Easter week but even so) and I fear that there is a great deal more to come on the (un)employment front across the globe. We are already beginning to see social unrest in a wide array of nation states and if more countries are forced to take the Irish medicine this state of affairs is likely to get a lot worse before it gets better. It is under this scenario that the huge fiscal stimuli from central banks can be understood to better effect, than just an attempt to prop up ailing financial institutions. It is often stated that civilisation is just two meals away from barbarism. Can you imagine what would happen in the UK if your plastic suddenly stopped working and the cash machines ran out? We rely on banks and the credit they guarantee to an extraordinary degree.

Corporate profitability seems to be draining away little by little and dividends are being cut by prudent boards keen to hoard cash against an uncertain future. The same impulse is forcing cuts in staffing levels and restrictions on new placements. The Treasury is printing money (sorry I meant quantitavely easing) as if the stuff did indeed grow on trees. Consumer goods inflation is at frightening levels (in many cases around 10pc) and the UK has a virtual political vacuum, both intellectually and competently, at the top. It is into this murky environment that investment managers and Joe Bloggs are trying to weigh up investment prospects.

On the FTSE we really need confirmation that the recent move higher will not disappear in a puff of smoke but we also need some comfort that new resistance levels above 4100 will not constrain strength and that supports between 3950 and 3850 will hold under any renewed bear attack. The markets are definitely looking in better shape than any time since early 2007 simply from the fact that volatility is slowly being removed from the equation. We have had rallies before but these have seen huge daily ranges and can (in hindsight) definitely be called bull traps. The recent moves higher seem to be more considered and therefore (hopefully) build on more solid ground. Into the mix though must be thrown the fact that the defensive play on Gold seems to have raised its head again (mainly due to Thailand admittedly). The yellow metal rallied strongly yesterday and remains firm this morning. This indicates that there are still a lot of players out there who are definitely not convinced that an end to the woe is in sight.

Oil also slipped from the highs of pre easter as unrest in the Far East seemed to be gathering pace. From the distance of many thousands of miles the events in Thailand appear somewhat unreal and almost completely stage managed with the 'Yellows' on one side and the 'Reds' on the other. It is difficult to estimate the real level of anger involved as both sides seem to be merely going through the motions rather like a three year old's temper tantrums but I understand that there is a real fear of destabilisation across the country. The entire region (Indonesia, Malaysia, Thailand and Burma) has been in the news over the last few years for reasons of serious social unrest and this was before the effects of the current downturn have started to make themselves felt.

Currency markets continue to trade in the same ranges although the pound is continuing to make a bit of a comeback. Versus the dollar there is the obvious major barrier of 1.5000 to be defeated as the two attempts on the level since January have both been violently rejected at 1.4990 and 1.4960. The current price at 1.4883-1.4886 up 40 pips this morning is encouraging but traders will no doubt be nervous the higher we get. While I would not recommend outright shorting of sterling at this point (as the mood has definitely turned slight more Sterling favourable) I have to admit that it is also difficult to suggest buying just now as well. Longer term players will probably await confirmation of the renewed strength with a close at least above 1.4900 before venturing into the game.