Betfair Official Blog

Gold up, Oil up, coins in pocket down

Daily View - 20th February

Markets were in a bearish mood last night as the price of commodities surged virtually across the board. Whilst the world seems to have concentrated on the price of Gold and Oil, the other commodities have been just as extraordinary.

In the past I have been sanguine about structural inflationary pressure within the UK economy, as it has seemed to me that much of the strain has been imposed by products beyond the control of the BOE rate control policies (the price of Oil and Corn could not give a monkey's about what the interest rate in little old England is.) This argument still holds good to a certain extent, but the recent moves in worldwide commodities mean that producers will be forced, yet again, to either raise prices or squeeze margins. In the booming economies of China, India and Australia the pressure will be taken up by inflationary price hikes, but in the 'old' economies weighed down with debt or slow growth (or a combination of both), it is more likely to be margins that take the hit. Not a good prospect for the stock markets.

In the UK this will be felt across the board as tax revenues may fall, substantially causing both the pound to weaken and the yield on Gilts to rise, as the Treasury is forced to go to the markets for ever more funding to plug the PSBR hole.

A raft of numbers are due out today, which should keep us on our toes for the trading session as government finances come under the spotlight in the UK, and the CPI and housing sentiment gets another going over in the US.

It seems that the FTSE is rejecting the 6000 level as decisively as it did at the beginning of the month. Having given the bulls something to cheer about in early action, we ran out of steam at around 6030 before a late sell off took us down to close at 5968 (still 20 up on the day). No such happy beginnings this morning after big falls in the Far East and a miserable performance from the States in evening action have taken the shine well and truly off the move. Our call on the open is for the market to come in some 60 points lower at around 5910.

FX markets are showing continued pressure on Sterling, with support levels in the mid 1.94s vs the Dollar and the mid 0.75s against the Euro. Major levels are 1.9390 and 0.7605 respectively and if the 09.30 Treasury numbers come in worse than expected we could see a swift attack on these from the markets.

As mentioned, Commodities went for broke yesterday. Gold went for the resistance levels of 915 and 926 mentioned yesterday and defeated them. The 926 level now turns into support and we are sitting bang on it in early trade with prices at 926.5-927.0. To be honest I could go through virtually every commodity and say 'new highs', 'broke resistance', 'continued strength' ad nauseum. Suffice to say, the markets remain very, very volatile and are no a place for the faint hearted.