Betfair Official Blog

Daily View - 4th February

Monday morning blues? Let us add to them...

It is not often that you can start a commentary, so early in the year, with a statement that celebrates a two week rally in the FTSE that has added 750 points to the index, and then follow this up with the line 'only 400 more to get back to the starting point of the year'!
So lets celebrate a two week rally in the FTSE, although we must bear in mind folks, we're still 400 short of how we kicked off on the 2nd of Jan.

The rally on Friday was actually quite surprising given the pretty awful US Non Farm Payroll figure which actually managed to come in negative. The reason given for the move higher was that the adjustments for the previous month's numbers were much better than previously thought. Sorry to rain on the parade, but as a purely independent observer this would seem to indicate an even sharper (and therefore more worrying) downturn in recent months, and may go some way to explain the indecent haste over the Fed's latest rate moves.

If we strip out the mining stocks, the overall performance is worrying with banking and oil still looking grim, and pharmaceuticals, which started the year so well, now struggling to hold up.

Reading the business press over the weekend, one would be excused for thinking that Callahan's famous misquote, "crisis what crisis" was the most appropriate term for analysts to be using. Phrases along the lines of, "good figures for last year's UK growth", "Chinese and Indian expansion will continue," and, "inflationary pressures building up," which peppered the weekend's expert columns, seemed to indicate a nicely robust economy thank you very much. The problem is that for a country the size of the UK with so much wealth creation and talent concentration tied up in one industry (the City), a balance of payments deficit that is beginning to look very grim indeed, a trade deficit that makes you wince every time you see it and a weakening currency held up only by unreasonably high interest rates, there is very little leeway when things start to go wrong.

Happy Monday readers! We may however (finally) be in for a quieter day. My dealers actually tested the phones on the open at 07.00 as they thought that they might not be working due to the lack of calls! There is some resistance in the index at 6060 (around where we are now) but there is not much until the 6175 to 6185 solid resistance levels which coincide nicely with the 61.8% Fibonacci retracement at around 6190.

Fx wise, with the MPC still sitting on a tight (by global terms) fiscal stance, all we have to look forward to is the prospect of falling rates. It is the expectation of lower rates which tends to weaken currencies (not the actuality, unless you are stuck at virtually zero for ten years like the Yen). Until the BOE cuts to a level that is seen as a bottom we may be looking at a long term decline in the Pounds fortunes.

Gold made a dramatic drop in just a few minutes on Friday, which rather pleased this commentator who only that morning had mentioned the tightening up of the previous few days ranges (leading to speculation of a break out.) There seems to be some solid support this time at just below the $905 level and we spent much of Friday afternoon and evening bouncing off it in a series of descending spikes. This type of activity would normally inspire thoughts of another break to the down side but Gold is a bit different and we may get a swift return to the highs just as easily as a shift into negative territory.

No political bad news on oil and a slowing economy in the States left the black stuff with nowhere to go but down. Reading Mr Ambrose Evans-Pritchard's comment in today's Telegraph gives a strong indication of the knife-edge that economies such as Russia are in over the price of Oil. The temptation for producers such as these to sell as much forward supply as possible at current prices must be very strong - there is a strong possibility that 100 bucks a barrel will just be a memory in a few years time.

Simon Denham is COO of London Capital Group.