Daily Financial Analysis / Simon Denham / 20 March 2009 / Leave a comment

Daily Comment Friday 20th March

So we go up and so we go down.

The markets appear to have taken fright at the highs but the pull back has been muted and, given the appalling data out of the US yesterday, must be seen in quite positive light.

On the other hand President Obama's first faltering steps are beginning to look rather accident prone, he has only been in office for a few months but his speeches seem to have degenerated into the same 11 word bullet point harangues of the last incumbent and there are only so many usages of the word "change" that you can take before asking "how?" At the moment congress and the senate seem focussed on a sort of witch-hunt to chastise those they feel have been 'greedy' and it is worrying that policy is in danger of degenerating into 'populist' moves. Down this route lies beggar thy neighbour isolationism and all the woes to the global economy that this would bring. While the huge liquidity injection into the economy, announced on Wednesday, is the really major piece of news fears are growing that the law-makers will set such tight stipulations on the expenditure that foreign competitors will be shut out. This could easily lead to a tit-for-tat scenario which would help few. The days of US primacy over the global economy are fading and many countries will not be as cowed as in the past.

The Hang Seng hit the buffers big time last night with a 2.5pc drop of 326 points which will weigh on sentiment at the open. The FTSE is called 30 lower at around 3790 at the moment which is pretty much the same call as late yesterday evening and the renewed weakness in the indices is causing fears in other instruments.

The FTSE, at just under the 3800 mark, has given back some of the recent rally but in truth it seems to be quite a struggle for the sellers at the moment to make a huge impression. Rallies of the last six to ten months have swiftly turned tail into renewed lows so investors will be wanting to see a few days of stability (especially on a Friday) as some confirmation as to whether we have hit some sort of low. If confidence drains away in today's sessions then the outlook may well return to the deep freeze section.

The Dow and S&P have also retreated from the spike highs of yesterday and Wednesday but have remained well in touch with those highs and are both still well above the closing levels of last week which itself was well up on the previous week. To put this in context, if we close in the Dow above 7240 this evening, it will represent the first 'two weeks in succession' rallies since last April.

As mentioned several times over the last few days there seems to have been a reappraisal as to banking risk and Barclays and HSBC have put on quite a surge culminating in Barclays closing at 112p yesterday afternoon up from 55p just 10 days ago. This morning there is something of a small pull back to 108p but the fact is that enough of the big boys are willing to go against the more recent rumour mongers and doom laden analysts briefings to make a serious difference.

The dollar remains in the dog-house this morning with Sterling tempting fate up at the big 1.4600 to 1.4650 resistance levels. Aside from the sharp sell off on Tuesday morning (which saw sterling lows at 1.3845) the pound has been on the up versus the greenback for several weeks now but we desperately need a break through the aforementioned resistance levels to really get the attention going. The high yesterday at 1.4595 and this morning at 1.4590 show how nervous buyers are about being the first to attempt the summit and sad to say if we drift off from here then the bears may once again take hold.

The euro on the other hand goes from strength to strength but, like the pound, is now running into good selling levels. 130 against the Yen has proved a painful point for buyers several times in the past six months and it rejected the level again yesterday. 0.95 versus the pound seems a similarly difficult pinnacle to conquer and aside from an abortive break right in the dying embers of 2008 the EUR/GBP cross has rejected this level three times now. The dollar euro has made a habit of making huge surging moves over the past five or six months all of which have appeared to be defining moments at the time but have all eventually petered out in time for a move in the opposite direction.

In all the chaos of the last few days Gold has been the obvious winner. When the markets were looking stable and the currencies trading in tight ranges sellers had the upper hand but as soon as tension and uncertainty reared its head the buyers pulled their boots on once again.

Traders are unlikely to risk too much pre the weekend but it must be said that the odds are not so heavily stacked in the bears camp at the moment and short squeezes seem easier to get going than in the recent past.