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Traders have started this action-packed week with a very cautious session, with major indices in the UK and Europe ceding early gains and Wall Street kicking off the week in the red. It still feels as if we are stuck in a fairly narrow trading range, but if anything can break us out of this it will be the week ahead, where earnings, economic data and central bank meetings will come thick and fast. Today is just the calm before the storm.
Any attempt at real gains by the FTSE 100 today has been hamstrung by the performance of Barclays’ shares, which sulk at the bottom of the index. The bank is looking to shore up its position with a fresh capital injection, and one hopes it will be better handled than the 2008 exercise.
This is now being investigated with renewed rigour by the SFO and regardless of the outcome the bank will not be pleased to be confronting this while trying to entice in new investors. By contrast, Lloyds is riding high (at least relative to the rest of the sector) after last week’s reports of fresh talks with respect to a partial sale. Both banks are unquestionably in a better position than in 2008, but it seems like Lloyds is the more tempting proposition for the moment.
Ahead of a week that contains a US Federal Reserve meeting, US GDP and non-farm payrolls, US markets are understandably in a cautious frame of mind. In addition, speculation about the next occupant of Ben Bernanke’s seat at the Fed is heating up, with fans of easing swinging firmly behind Janet Yellen as the person most likely to keep the asset bubble going. Until we know what the latest thinking from the Fed is, however, an upward catalyst for stocks is still lacking.
Both gold and silver continue to drop back from the highs of last week, a clear indication (if one were needed) that this latest rally is not seeing all-out participation from enthusiastic investors. However, a steady progression of higher highs and higher lows indicates that a fresh attempt to push to a month high cannot be ruled out entirely. $1350 and $20.50 remain the levels to break for gold and silver respectively.
Speaking of steady trends, the euro continues to climb against the pound, as the single currency benefits from a lack of any new spasm in the eurozone crisis, and economic data shows a welcome upturn from the major powers of France and Germany. With the Bank of England and ECB meetings this week, we will have plenty of opportunity to weigh up the competing merits of the euro versus its older cousin across the Channel.