Daily Financial Analysis / Simon Denham / 15 May 2009 / Leave a comment

Daily Comment Friday 15th May

Yesterday's trading can only be described as dull after the FTSE put in just a 70 point range and for most of the day it fluctuated between 4320 and 4350, during which time I was thinking that I'd have more fun watching the cricket when it's raining!

Wall Street was little better as it too drifted along, up a little bit, down a little bit and if felt like investors had pretty much packed up and gone home. I suppose it comes as little surprise as the market has been trying to make out what it thinks of Obama's proposed measures, which sounds like quite a radical overhaul of the current capitalist system and insisting that business operates with one arm behind its back. Today we've had the release of our very own report on the reform of City pay, which has most likely had a few red lines through it since the mess that MPs have got themselves in over expenses. We've heard time and time again that the past bonus structure led to excessive risk taking and reckless deals and today's report is along exactly the same themes. The bottom line is that bankers who make copious amounts of money for their firm should be rewarded accordingly, but it's the actual deals themselves and the subsequent risks undertaken that ought to be tracked and monitored more closely. It's hard to say to a banker that they can't get a slice of the profit when other bonus schemes in other industries are based on a similar model. Just take Sainburys's recent results and announcement of a windfall for all their employees for example. Tighter controls on City pay will also likely lead to methods of getting round any new rules, as mentioned in yesterday's column the share options that were given out to many bankers in March when the share prices were a fraction of what they are today. On top of this the report is calling for greater disclosure of what the highest earners get, the implications of which for the individuals both in and outside of their job could be severe.

On the markets today the FTSE is still refusing to make any decisive moves as we've opened marginally higher at 4375, up just thirteen points. Barclays is the highlight of the morning and their share price is having a good start to the day, up some 13p or 7%, but still a little off its recent high.

Currency trading was a little bit range bound yesterday too in the absence of any major data or news. The "appetite for risk" trade i.e. selling dollars to go into AUD, NZD, EUR and GBP is also suffering from a similar fate as the equity market. Whilst sterling had a sell off after King's comments on Wednesday, the move hasn't been as dramatic as some had expected and whilst cable if off it's recent high of 1.5350 it isn't too far below that now trading at 1.5190 this morning.

Gold is still trying to make ground after having broken through resistance around 920.0. The more the metal stays around the levels though, the more likely it is that we'll see selling pressure. Interestingly, clients are long the future gold contract, but short the rolling, so perhaps expectations are for a decline in the near term, but a continuation of the move higher from mid April. At the time of writing gold is trading at 925.5.

For Brent we've once again seen a near identical move in conjunction with the equity market. A poor start yesterday led to a little uptick. We're at 58.50 in the July Brent this morning after a decent rally late in yesterday's session. For oil bulls there's concern that the recent move higher could unwind quickly if sentiment about the global economic recovery turns sour. Alls Oil eyes will be on the next OPEC meeting on 28th May.