With limited economic data out in the morning session to shift mentality, gloom descended on trading floors across the City. The FTSE spent much of the morning within touching distance of the 200-day moving average and there was a palpable fear that a breach of this would lead to an even more pessimistic sentiment. Half-an-hour after the US open a calmer sense of perspective emerged as the FTSE traded 100 points above its early morning low.
Last night's out-of-hours shock that Stephen Hester, the CEO of Royal Bank of Scotland, would be stepping down by the end of the year and before the bank had managed to completely float again, ensured that not only RBS but the banking sector as a whole started the day heavily in the red. Without a prepared replacement and with confidence such a fragile commodity for the banking sector, it was no surprise that the shares were trading down over 5% from the open. With almost unbearable pressure from the government and particularly close scrutiny from the press it is not instantly obvious who will be queuing up for this not particularly well-paid FTSE 100 job.
Ahead of the US open news that monthly retail sales had headed higher and that unemployment claims were lower gave US indices a more measured start than their European counterparts. Like almost all the major global indices, the Dow, S&P 500 and NASDAQ have all had a negative few weeks of trading, but it is considerably easier to feel calm, as at this stage it appears more like US markets have blown some of the froth off the top rather than changed sentiment. Although Americans would like to see a gradual continuation to their recovery, equity traders around the world are probably hoping for the worst in order to receive the welcome boost of further quantitative easing from the Federal Reserve. Undoubtedly the new 'bad is good' mentality will leave all those not working in the City scratching their heads.
Following on from yesterday’s downgrade of global growth from 2.4% to 2.2% by the World Bank, Brent crude oil has continued to soften. The likely consequence of slower global growth being reduced demand for the energy source, has seen oil traders ease their pricing of the commodity. The continuing weakness in the US dollar, coupled with yesterday’s surprisingly strong US crude oil inventories is making this a little less clearcut.
So far today the price action of gold has been somewhat disappointing, especially given the confirmation that one of the world’s largest economies has seen their major equity index move into bear market territory. That being said gold traders have required an increasingly bleak picture to be painted in order to see any life in the precious metal. In order to regain any sort of bullish momentum gold really needs to close above $1425 and although it is holding its own is showing no real sign of achieving this anytime soon.
In a reveral of the previous month’s trends it is now the Japanese equity index that appears to be driving the currency. The Japanese yen continued to gain momentum against the dollar and by midday it had recovered slightly after hitting a Y93.78 low in early European trading. The suitably muddy water that the Japanese yen has created has enabled EUR/USD to break out of the range-bound trade that it had been stuck in for the last couple of months. After stretching its legs yesterday it has been relatively calm in this trading session, however the intraday year highs of $1.3710 set in early February must surely be in its sights.