Calm before the storm?

Discussion in 'Market Commentary' started by SimonDenham, Jun 29, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    The majority of the world continues to turn but according to the global rating agencies the UK has stopped dead which has caused them to reassess their sovereign ratings. S&P, Fitch and Moody’s have all now cut the rating of the UK which seems rather a knee jerk reaction. I always thought that ratings were assessed on a huge array of known and implied data that took months to analyse (at least where nation states were involved) but the chaps in the back room appear to have been working overtime to make sure they are not left behind by their competitor agencies.

    Over in Europe the politicians also seem intent on making the worst of a bad job which is also self-defeating as it is hardly conducive to good relations with anyone if you go down the route of “if you don’t agree with us, we will punish you”. The single bloc is a good idea if there is flexibility but .... where there is none then you risk slipping into rigidity and zero growth.

    Over in the UK the BOE is now expected to cut rates to close to zero which, to be fair, had been postulated anyway over the last few months as the economy started to slow. What was not expected was for the new expectation for further QE. As a consequence, 10 year gilt yields are now down below 1 percent, German yield are below zero and French are also at all time lows at just 0.25%.

    Germany is in the situation where they can issue 10 year debt and actually reduce their budget deficit ! But unlike everyone else the Germans have a budget surplus.

    As mentioned yesterday the markets seem to be getting a little more positive about events as investors look to dip a toe into the water. In the end most world markets ended the day on the right side of the angels and this morning there is an early attempt to continue the pressure to the upside. I am not sure how much further this can go before the bears smell another opportunity but the initial highs have been rejected in early trading on the open. We must hope that the renewed buying lasts longer than just a day or so.

    Economic Data

    Nearly all the data out yesterday was just shading towards the positive with US consumer confidence climbing to 98 (expected at 93) and the final Q1 GDP edging up a few pips to 1.1% from 0.8%.

    Toda we have already seen the UK house prices which rose again in June (the last hurrah?) and German consumer confidence also pushing up once again.

    Later we have UK mortgage approvals and a series of German inflation numbers which are expected to be weaker and then this afternoon the US consumption figure which is likely to come in at 0.5% up and the core PCE price index for May which is looking to remain stable at 0.2%.

    Later this afternoon at 15.00 we then see the US Home Sales numbers which analysts are saying should have slipped a bit.

    I am not sure if we are ready to start looking at economic data again (I suspect not) but all the pre-brexit data points to stable low growth scenarios.



    We are currently up again this morning putting on another 110 points to 6240 after yesterday’s 120 point move and we are now just under resistance at this level. The index is now pretty much where it has been for the last 10 months. As mentioned yesterday there is a lot of muck under the bonnet though with non-core UK companies doing very well and UK focused firms doing very badly. If the politicians can stop being so definite about things and start to sound more diplomatic (which is after all why we elect them) there is no reason why the Brexit event cannot be contained and, eventually, written off as just a minor historical hiccup.

    Support is at 6145/55, 6045/55 then 5995/05 and 5965/75

    Resistance is at 6240/50 and 6320/30


    The DAX is still well below recent levels even after yesterday’s minor rally. The index is currently about 100 points up but most of this was seen in the post European US session last night. It is hard to get too much of a handle on the index as so much is focussed on sentiment and on the latest pontificating by Merkel and Junkers (who seems more concerned about his precious EU construction than about sorting out the issues)

    Support is at 9445/55 then 9420/30 and 9315/20

    Resistance is 9585/95 and 9655/65 then 9720/30


    Yesterday’s session was remarkably calm in the US with a slow steady move higher throughout the day with a minor dip as Europe closed which was reversed later in the session. Since then we have seen more of the same with a slow steady grind higher with few attempts to push us lower.

    Markets around the world have been steadier than in recent times and with global central banks all seemingly willing to resort to their knee jerk liquidity solution we can look forward to even lower rates in the short/medium term. The index is just 300 points from the pre-vote levels (less than 2%) and it is hard to be too negative just now.

    Support is at 17405/15, 17280/90, 17100/15,

    Resistances can be seen at 17530/40 17600/10 and 17635/45

    FX Markets


    The Euro cross seems happy at the current levels but we are pressuring the resistance levels just under 1.1100. With the pound recovering a bit woes for the currency would appear to be abating marginally but it must be said that the Eurozone was limping along anyway and the impact of the UK’s action may actually harm them more than it harms the UK.

    Politically they can blame Britain for a while but if the effect in Europe s to stop what small increases in employment as we have seen in the last few months the clamour for more radical solutions may become louder.

    Support is at 1.1005/15 then 1.0970/80 and 1.0890/00

    Resistance is at 1.1085/95 then 1.1165/75 and 1.1245/50


    The pound is recovering marginally and (I am going to stick my neck out) we may have seen the end of the sterling weakness panic. Indeed far from being routed the pound may actually benefit in the longer term as event turn more stable.

    Support is at 1.3280/90 then 1.3205/10 and 1.3115/25

    Resistance is at 1.3450/60 then 1.3530/40 and 1.3570/80


    Gold bounced off support last night and we are now up at 1320 with buyers continuing to pile in. Clients have been topping up again and we are seeing over 75% long strategies. I continue to be a bit wary of the yellow metal as the turmoil in the markets which is causing the rally seems to be abating somewhat.

    Support at 1312/14 then 1298/00 and 1286/88

    Resistance is at 1320/22, 1328/30 then 1335/37 and


    Headlines of ‘markets and oil move higher’ but I am a little fogged as to the confidence of the statement. Yes, oil is about 80 cents up from this time yesterday but this is hardly odd. We were here on Monday as well.

    As we said yesterday

    “Buyers are still around but so is the production surplus. Probably means we are going nowhere fast.”

    Support is at 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 49.10/20, 50.00/10, 51.70/80 and 52.05/15

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