Betfair Official Blog

Commodity prices continue to weaken

Daily View - 24th July 2008

JJB Sports have reported like for like sales off by just over 1% YOY which will come as something of a relief to investors who might have been fearing worse. The company has, undoubtedly, been suffering in the current climate but the business model appears to have been merely delayed rather than shot down and the board seems confident that, whilst the rest of the year will be challenging (seems to be the word of the year for retailers), the company is moving in the right direction.

The stock has had a torrid time of it since almost the first shots of the credit crisis but the recent bounce from lows of 75p seems to indicate that investors feel there is value at these levels.

Kingfisher's 10 week sales have almost matched JJB Sports with LFL sales off 1.5% but overall sales up 4.4% in the UK. The performance of the stock almost exactly matches JJB as well with the recent bounce from lows taking us from 88p low to the current price of 116p. Both stocks are unlikely to move much on the news but for the long term the companies appear to be on stable ground.

Yesterday's activity was heavily dollar focused with the rally in the Greenback causing further decays in dollar priced commodities. As mentioned yesterday Gold was looking a tad weak and the price action throughout the session bore this out with a 30 buck fall to $918 by the close. This morning there has been a bit of buying from the Far East and we are back up at $925 which will be something of a relief for our clients who have been resolute buyers throughout the recent drop. In the longer run Gold looks over valued at current levels IF you believe that the current financial woes might be playing themselves out. The problem is that it is unlikely to be that easy for the world economy and there is a strong likelihood of several buried bodies being found before the lid can be closed on this episode.

Oil also joined in the rout with another 450 cent drop and we are now sitting uneasily at 125 bucks for September Brent. It is very difficult to call either way at this point as absolute value (probably between 60 and 80 dollars) is at the mercy of so many outside influences.

Unfortunately for the FTSE the preponderance of Mining and Oil companies (which has helped over the past year) will now probably hold it back if commodity prices continue to weaken. There is always something out there to feel miserable about! As mentioned yesterday our clients were strong buyers of Bank stocks and the reaction in the markets to the 'better' news coming from Citygroup et al was reflected in a strong performance to add to the post rights bounce of the previous days. Dividend yields continue to look stellar and a few units have already announced 'no cuts' which (if the BOE does begin to cut rates) will make their attraction rather more obvious in time. Yields on most UK centric stock are looking attractive if you can play the 'long game' but this does not mean that there is not a strong possibility of yet more pain just over the hill. The bear market hasn't done with us just yet.

Again the comment yesterday concerning the Euro proved to be right on the button with investors suddenly falling out of love with Euroland's greatest accomplishment (at least for a day or so). Sterling added a big figure from 1.2615 to 1.2715 but now the Pound is itself struggling to get through resistance. Since Sterling fell through the 1.28 level back in March we have had four or five attempts to break back through 1.27 to 1.28 and all have been defeated. Traders appear to be happy to take profits at these levels and leave it to someone else to try to force us higher. If the follow through does not appear in the next few sessions then the sentiment will probably turn once more and 'Sterling bears' may raise themselves up again.

The recent dollar resurgence (which has dragged the pound with it to a certain extent) is in the same situation as the gbp/eur with the move looking to have run out of steam for the moment. With only existing home sales due out of the States this afternoon any follow through will probably have to wait until tomorrows Durable Goods numbers.

The Tradefair Spreads Team