Yesterday showed that despite this supposedly being one of the ‘quietest’ weeks of the year, with many people either recovering from their Xmas excesses or more focussed on what they plan to do for their new year’s party, the markets still managed to provide a lot to talk about.
There was an encouraging start to the first post-Xmas trading day for the UK equity markets, which was boosted by news that strong demand for 6 month Italian debt halved Italy’s short term funding costs. However, market sentiment soured later in the day, as the markets weighed ECB figures showing overnight deposits at the central bank rose to an all time high of 452 billion euros, a sign of risk aversion.
Furthermore, many investors are still waiting for the outcome of the more crucial 10 year Italian Government auction later today. A poor showing here would add further fuel to the fire that is the Eurozone debt crisis. Despite Italian 10 year yield initially falling to around 6.75%, it closed flat at around 7% yesterday. At the time of writing, it is still around 7%, however if it starts to head north from here many investors will wonder how much more battering Italy can sustain – especially as it also recently announced another record round of austerity measures.
The fallout from the news of ECB deposits also led to another round of selling in the Euro currency, which again moved below the psychological 1.300 level. It is trading around 1.2930 at the time of writing. The single currency is now back to the levels it was back in January, at the start of the year. If it continues to fall from here, there really is not a lot of support to speak of for the currency until gets to about 1.2650. At which point, why stop there? 1.2500 would certainly seem a reasonable target. If we manage to consolidate support around the current levels, we could see a possible a bounce back up to around 1.3200, and then 1.3420.
Low volumes will very much be the dominant theme for this week. With this in mind, we can possibly continue to expect quite ‘whippy’ and volatile trading sessions. There are a number of figures out today, mainly of a US flavour. Most notably, we have Initial Jobless claims, Chicago PMI and pending home sales. Given that it was the US session that kicked the markets in to life yesterday, it is well worth keeping this in mind for today too.
The FTSE is currently trading around 5512, which puts it pretty flat on the day, up 12, and very close to where we were at the time of my commentary yesterday. We therefore still wait to see whether the FTSE can record a gain for this month, with 2 trading sessions to go (including this one). 5500 is quite a pivotal level in the FTSE, and acts as a strong support/resistance level as the market breaks above or below it.
Gold continued its downward fall yesterday. We probably had a strengthening dollar to thank for a large portion of the fall. The fact that the yellow brick also continues to sit below its 200 day moving average doesn’t help, as this acts as an additional weight pushing it down. We are now not too far from the spike down we had back in September, around 1536. Given that markets do have a tendency to re-test spikes, it would certainly seem reasonable to view this as a short-term target. The long term trend is still up for the yellow metal, although the recent sell offs are requiring a re-adjustment of just where to place that long term trend line. 1530/ 36 are strong support levels, while we could see resistance around 1600 if we bounce form here.
Elsewhere, oil continued its roller coaster ride and got sold off yesterday, after many felt that Iran’s threat to close the Strait of Hormuz, through which one third of the world’s seaborne oil trade passes, was an empty one. The price of Brent fell almost $2, to trade at 107.56, while US crude retreated to $99.36 after trading above $101. This morning Brent is trading around $107.90. Support and resistance over the near term still stand at 107.35, 106.15 and 109.45, 110.25 respectively.
