Betfair Official Blog

Unemployment shouldn't be as bigger hit as inflation

Daily View - 16th July 2008

With markets still digesting the nasty inflation numbers yesterday we will now move onto the employment data today. Whilst the headlines have all been about layoffs and hiring freezes the fact is that the unemployment number is still the dog that hasn't barked. The huge layoffs from the builders will take some time to filter through into the numbers and the culls in white collar employees tend, anyway, not to impact the figures as the stigma of 'signing on' remains in place for many in the middle classes. Many of those laid off from building projects will have been self employed contractors for whom it will be while before inactivity drifts into economic necessity.

The claimant count is expected to rise to 2.6 from 2.5pc but the ILO Unemployment rate is forecast to remain stable at 5.3pc with a headcount increase of just 10K.

Early calls on the FTSE are for the market to rally some 30 points to around 5200-5201 but the woes surrounding the financial sector seem to get worse and worse. RBS's fall into the mid 160's is truly astounding given that even the most bearish analyst was only talking about 230p a couple on months ago. The bank is now worth less than they paid for their bit of ABN Amro which makes the debt taken to do the deal loom ever larger in investors minds.

US financial fears continue to circulate around Lehman and MF Global whilst Fannie Mae and Freddie Mac finished on new lows. US lawmakers are trying (rather belatedly) to rein in 'short sellers' but this must be seen as a desperation measure. If equity in insolvent companies has to be propped up in this fashion then the financial stability of well founded operations can get dragged into the mire as good money goes after bad.

As mentioned in yesterday's column dealer were watching the 160 euro vs dollar level like hawks and the initial spike up to the level brought out the sellers in droves. Clients made hay in the afternoon as both the euro and pound slumped from morning highs in a classic reaction to resistance level failure. This morning we seem to be stable at yesterday's closing levels but the pressure is still to the upside as the dollar comes in for a pounding across the board. The prospective increase in Treasury debt is not helping and foreign investors are starting to mutter about the tacit US benign neglect of the Greenback.

Punters watched in surprise as the currency gyrations finally impacted on the oil price as even a small retracement in the dollar weakness caused a massive capitulation in oil longs. In one hour the price fell over $10 before finally finding support at $136 (Sept Brent). Only another six days like that and we will be back at 80 bucks!!

Trading remains very nervous and punters are concentrating on ensuring minimum risk as equity continues to destroy capital at a frightening rate. I continue to advise that the 'tin hat' posture in a very deep trench is the right status to maintain. "keep your powder dry" for use in more certain times.