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The past week has seen profit warnings by the score, plus an increase in concerns surrounding China growth and Federal Reserve policy. Banks have risen on news that there may be a co-ordinated settlement of FX manipulation charges, but overall the market itself is still looking distinctly weak.
Any close below 6650 for the FTSE 100 will put the bears in charge for the week to come, especially in an environment where looming non-farm payrolls keep equity investors on the sidelines. With two trading days of the quarter left we could see fresh lows in the early part of next week, especially if China and US figures on Tuesday are below expectations.
Sellers of supermarkets are still to be found, as Sainsbury’s and Morrisons have discovered today, while real estate trusts such as British Land and Hammerson are finding buyers thanks to their solid dividend appeal.
US indices have seen some booking of gains by shorters, which has allowed the Dow Jones to recover the 17,000 level. Technical traders will still be watching the Russell 2000 after its ‘death cross’ this week, even if support is still likely to be found around current levels. The macro calendar next week is busy enough to bridge the gap until earnings season, but the lesson from the end of the third-quarter is that volatility is back on the agenda.
The coming three months should see a much more cautious atmosphere, particularly if improving US data lends weight to the theory that an interest rate hike is coming much earlier than expected.
What began as a morning of small gains for gold turned into yet another day of selling, with gold pushing back towards $1200. This is the problem for commodities at present – they do poorly on days when stocks are up, and on days when the dollar is up.
For the time being, until such time as another geopolitical event crops up, additional downside for commodity prices looks fairly certain, especially as long as the US dollar is in favour. This applies even to crude prices, where the short-term bounce in US light crude seems fated to come to an end as supply considerations take over.
Having tested $1.27 yesterday, EUR/USD is falling once again. This week has not been particularly busy on the macro economic front, although speeches from Mario Draghi have done their bit to imply that the euro will be going lower in due course.
In the week to come, German and eurozone unemployment and price data will act as a useful prelude to the European Central Bank meeting, but if Mr Draghi is to restore confidence he either needs to implement full blown quantitative easing or find a form of words that has proved to be more reassuring than his pronouncements so far.