Markets have done their best to make gains today and put all of Monday’s bad memories behind them, but it is hard to escape the feeling that this attempt at a rally is already running into the sand. These days it is hard to know whether good news is good news, or actually bad news. For the moment it seems that we’re still in a position where good news causes markets to go down, with this ‘Alice in Wonderland’ situation likely to prevail for a while yet.
The FTSE 100 has, with its large mining contingent, been at the mercy of news from China for the past couple of sessions, with today’s apparent bout of optimism caused by hopes that the People’s Bank won’t yet slam on the brakes in credit terms. This has given commodity firms something of a fillip, but it doesn’t change the outlook that growth from the world’s dragon economy is probably going to be much weaker than previously hoped. Carnival Cruise Lines appears to be having difficulty moving into ‘all ahead full’ mode, dogged by troubles aboard its ships. Further, it thinks it will be heading into choppy waters with its bookings, which are expected to be down on last year.
Today’s avalanche of US data has done little to put the fight back into Wall Street, which is currently struggling to show much enthusiasm for a meaningful rally. Almost everything was better than expected, but even this burst of good news couldn’t tempt the bulls out of hiding. It appears that, far from being the ‘feral hogs’ suggested by the Fed’s Richard Fisher, investors are just trying to do the same thing as the Fed, looking at each piece of news and working out where it fits in the great jigsaw puzzle of global equity markets.
Gold has consolidated since bouncing off a two-and-a-half-year low last week. The stronger dollar owing to the taper on/taper off market dynamic is helping to cap any gains through $1290/oz level and thus creates the bias to the downside. A break below last week’s lows should find support at the $1240/oz levels in the near term. Only a concerted break through the $1300 level will exclude the downside risks.
One has to admit that the economic data emanating from the US has been pretty stellar today and has initially helped to push oil prices higher, with the WTI contract testing $96/bbl, its highest level in five days. Supply concerns are helping to boost also, with new that there is a pipeline interruption in Alberta, Canada. Prices are likely to remain range-bound, finding support around $92/bbl unless a weaker dollar ensues.
Comments on additional tools that the ECB may utilise have helped the euro push lower against both the dollar and the pound today. The single currency has now given up over 50% of the gains against the greenback since mid-May. The $1.3050 level appears to be holding for now and in some respects may work to the better for the eurozone which is relying heavily on exports to exit the recession. The fall against the pound was neutralised to an extent by outgoing Bank of England governor Sir Mervyn King’s comments. He stated that quantitative easing was likely to continue for some time to come given the continued fragility of the UK economy.