/ Simon Denham / 24 April 2009 / Leave a comment

Daily Comment Friday 24th Apriil

After the non-event of the Budget all the markets seem to have gone back into their shells. Dealers continue to trade the ranges and it is becoming very difficult for market makers to cover risk positions in this environment.

The entire closing price range for the FTSE in April is covered by a very small blanket of just under 200 points (March 550, Feb 800 and Jan 650) the one day spike in volatility levels on the 20th April has been snuffed out with almost arrogant ease and we are settling in for another session of going over the same old ground. We open this morning at 4040 twenty points up and already the sellers are sharpening their orders to get out and get short above 4050/4060 if we get there. Punters have seldom had such a favourable market situation and many have been taken good advantage of the constrained ranges to make money on the same price moves day after day.

For equities there seems to be a feeling of lull before the storm as investors continue to hope that Mr Darling's prognosis of Jam tomorrow will actually arrive. Whilst I would not dispute that there is a reasonable chance of an end to the recession towards the end of 2009 or beginning of 2010 it is the assumption that this will turn into a 3.5pc boom in 2011 that is sticking in my gullet. With most of the 'tax rises' and budget cuts starting in the second half of 2010 it would be a vey confident Politician who could claim that the UK could grow its way out of that kind of braking effect. Of course Mr Brown and Darling will probably not be around by then so the failure to match the targets will become the fault of the incoming administration!

After the Budget of Wednesday I was having lunch with a colleague from a competitor company (married man, two kids, wife at home) we worked out that he would take some £8000 pounds less home next year than this. Of course he is well paid but this is a lot of things not bought, tradesmen not paid etc etc. There will be many units across the country that will be looking at the feasibility of moving to more favourable climes. Attacking the wealthy is very easy but never works. Yes you will get the PAYE guys but transitional income will somehow prove elusive. Major celebrities may move away as well as they will say "why should we pay?" and while this may be no bad thing (!) others will follow.

Dealing remains solid but unspectacular with the only real move of the last few days being the rally in Gold back above $900. The huge debt issuance due across the globe over the next few years is raising the value of 'supply constraint' assets. It is not that Gold is becoming more valuable per se. It is that dollars, yen, euros and pounds are all worth less. We might also wonder if the precious metals market is gearing itself for a renewed bear move in equities. The restrained activity in the equity markets may well be based on the continual battle between the bears who cannot see anything good on the horizon and the bulls for whom some good is just around the corner. At the moment the corner is still not in sight and if the perception gains ground that it might be a long hard graft into the sunlight then a third phase to the bear market may be upon us.

As mentioned we are seeing heavy selling this morning from clients watching the 4050/4060 resistance and at the moment this is holding well. At some point there will be a painful spike through a support or resistance level but today (in truth) does not seem to be a likely example (famous last words). There is little news today and after such a dull week most traders are probably looking for and early bath.