Daily Financial Analysis / Simon Denham / 01 June 2009 / Leave a comment

Daily Comment Monday 1st June

GM's move into administration has galvanised the markets as investors start to believe that some of the nasty decisions are finally being taken. The US government is now the majority shareholder for much of the American Auto industry (with the Unions also pretty massive stakeholders) and it will be educational to see how these two instinctively antagonistic protagonists will get along.

One fears that this will be the beginning of a long line of disappointment as lack of focus or development money combines to hamstring what is left of the business. Any further major investment will run into accusations of state aid from competitors and any attempts to slim down the behemoth will run against the wishes of a major shareholder (the Unions) and the natural distaste of any government making redundancies.

With the state becoming ever more involved, thorough one means or another, in areas not usually associated with such things (outside of the old Communist regimes) the dead hand of bureaucracy is raising its grim hand over a significant portion of the economy. Whether they can manage the dichotomies involved will be a lesson for another day.

Traders went into the weekend on the short side as many clients gambled on the very late Friday move being a tad too aggressive. Unfortunately for them, as we can see, the optimistic feeling has carried through into Monday morning (an event in itself). The FTSE is now just below the major 4500-4525 resistance level, having had a go at breaking higher in very early activity already. While other markets are also looking very positive it must be pointed out that we looked just as bullish back on the 7th, 8th and 19th May as well only for the pressure to drain away and the status quo to gain the ascendancy once more. Longs have been quick to take profits up here and we are seeing ever greater short position taking with stops around the 4530 region. The best chance for a continuation of the current rally is if there is a nasty little "bear hunt" forcing prices into a higher trading range by the power of a rolling trigger of weak buy stops.

If we are not above 4525 at the close this evening sellers may well become bolder and the pressure might well push us lower again.

In the US markets the way would appear to be slightly clearer as we are now (just) trading above those same 7th, 8th and 19th of May highs in both the Dow and the S&P. BUT this is only in the European session and if there is one thing the US markets hate it is being pushed around by Europe. Time and again we have seen big moves in London time being reversed on the US after 13.30 so traders should beware this 'break out' until confirmed in early activity over the pond.

As mentioned last week the continued tacit approval of the US treasury and Fed towards a weak dollar is beginning to really start things moving on the currency front. The pound is back up to 1.6400 this morning up 2 cents on the session already. As commented last week the lack of any real volume trading until we get to around 1.6700 as left us with little in the way of resistance to a move higher in Cable, of course the speed of recovery means that the same could now be said for a retracement back to 1.5250 !! The weakness inn the Greenback is also having a materiel effect on commodity prices and while Gold is now flickering at the fabled $1000 level it must be said that in Sterling terms gold is actually cheaper now than it was at the start of the year even though the dollar price has moved from 880 to 990.

Corporate news continues to bump along the bottom with the odd high and lowlight thrown in. We now seem to be in a kind of Limbo as we await the effects of the huge fiscal stimuli of the last nine months. With the UK and the US having pretty much shot their bolt the feeling of impending doom must start to lift soon otherwise the consequences could be extreme on the employment front. With this years school and college leavers about to hit the job place and many major corporates still wielding the axe rather than the wallet for all of the good market news recently the fact is that the jury is still out on the prospect for growth in the last quarter 09 or Q1 2010.