The first month of 2012 draws to an end and it’s one nil to the bulls.
The month has had its ups and downs but overall a bit of a bullish slant has taken many investors by surprise. The FTSE is looking to post a gain of over two percent in the month whereas its European counterparts have had a much stronger month with the German Dax over six percent higher and the French Cac over four percent on the side of the angels.
This indicates a change in sentiment towards equities and a degree of confidence in the overall outlook for the wider economic picture. If equity investors are growing in confidence then their belief is that future prospects are brighter. We saw yesterday confidence numbers in Europe come out better than expected and this morning in the UK consumer confidence has complimented that rising to its highest level for seven months.
Whilst this is encouraging we can’t get too excited as these rises are from very low bases and in the case of the UK today’s data was compiled ahead of the GDP release which showed the UK contracted more than had been expected in Q4 of 2011. But even if the GDP figures were known to those surveyed in at the beginning and in the middle of January, the fact that inflation is coming down and expected to fall sharply throughout the year, consumers are always going to be happy about that and rightly so.
However bond markets on the other hand remain less optimistic as Portugal’s borrowing costs soared yesterday and even though Italy’s bond auction was considered a success their borrowing costs remain stubbornly high.
At the time of writing the FTSE is higher by 45 points or so taking it back above the 5700 level to 5715. The strength in US and Asian markets overnight is the main reason for the recovery and perhaps there might be a hint of window dressing as January draws to a close.
Promises of a conclusion of the Greek debt talks continue and remain in focus for the markets, as well as the Portuguese ten year government bond yield. Economic data is thin on the ground this morning and then later in the day we get US consumer confidence numbers. Across the pond confidence has really bounced strongly and so expectations are for a further rise, but not to the extent of recent months. As a result it may not cause any big fireworks this afternoon.
FX traders are seeing a sharp rebound in the euro this morning after it fell 70 pips yesterday against the dollar. Traders moved out of the single currency on the back of Fitch downgrades and the Greece’s failed attempt to strike a deal with private bondholders. The world looks a different place this morning, as Greek PM Papademos said progression has been made with bondholders over a debt-swap, meaning a deal could be around the corner. His announcement was enough for traders to close out any short positions on the euro, causing a fall in the dollar. The pair is currently trading at 1.3175, with support at 1.3075 and resistance at 1.3230.
With a stronger US dollar, gold found it hard to break into positive territory yesterday, ending the session down 8 dollars at 1729.5. It seems investors around the world were yet again nervous about European debt woes, helped by the lack of an agreement materialising with Greece’s creditors over the weekend which dampened the bullish momentum. Another factor in the decline may have been profit taking as traders looking at the technicals may have thought that the precious metal was getting too high above the moving averages. Nevertheless, at time of writing, the yellow brick has made ground and added yesterday’s losses back on to the price with a tad more, trading at 1743.1.
Concerns over Iran’s nuclear powers were alleviated in yesterday’s session as the International Atomic Energy Agency began its visit to the Middle Eastern nation, showing that they’re not completely closed off to dialogue. Something else to consider in the day’s decline was risk adverse investors finding safety in the US dollar, which in turn helped drive crude prices lower. At time of writing, Brent is up on the day at 111.62.
