The "Top Gear" Effect

Discussion in 'Market Commentary' started by SimonDenham, Jun 6, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    Strange events on the Brexit front.

    In one corner we have three middle aged blokes (Messrs Gove, Johnson and Farage) and in the other we have every single Party Leader (plus all their infrastructure), every Economist on the Planet, every Financial Institution on the Planet, the Trade Unions and most of the great and the good ….. and somehow the three seem to be swinging the argument. Even the newspapers, many of which had been heavily pro the exit choice, now seem far more in favour of the Remain option.

    My personal belief is that many people are saying that they will vote for Exit but, when the chips are down and they are actually standing in the booth, they will actually plump for Remain. There is the permanent belief that the EU will blink first and will offer some kind of concessions to Mr Cameron if we push them far enough. To be honest there is probably more chance of this happening than when Cameron went wandering around Europe with his begging bowl held out, only to be told not to hover around on the door step as he rather lowered the tone of the area.

    On Friday we also ran into the brick wall of the Non Farm Payroll data which rather sumped the economists by coming in at just 38k whilst the previous months’ data were also downgraded (leaving May’s figure actually negative on a stand alone basis). Markets reacted as one would expect, falling sharply but then investors seemed to have second thoughts and buyers returned as fears over Fed interest rate hikes faded somewhat. Policy makers were believed to be about to raise rates at the next FOMC meeting (15th June).

    We have now got a nice little conundrum for Yellen. Recent data has shown signs of weakening but data before this was undoubtedly powerful so does she go with her original intention and push for a hike or listen to the doves a wait once more? Wednesday week could be an interesting day.

    Economic Data

    Very little data taday which gives us more time to ponder the US data for Friday!

    This morning we have already seen the German Factory Orders number which has seen 2% reduction much lower than the expected 05% fall.

    The at 08.00 we should get the latest UK house price index which is expected to remain steady at about 8 to 9% YoY.

    Indices

    FTSE

    The Brexit poll has impacted the pound (again) in direct opposition to the contrary information a couple of weeks ago. A few days ago we all thought that the back of the Brexit resistance had finally been broken as polls came in showing solid ‘Remain’ camp leads. And yet here we are a few days later back in the mire.

    The weak pound and the move higher in Oil is helping the FTSE a little this morning and the index is currently sitting comfortably above 6200 at 6230 in pre-market trade. The chaos of Friday’s session seemed to entirely bypass the UK. With the Dax and Dow swinging wildly the FTSE quietly pottered about in it range and closed 24 points to the good even though the Dow (at that point in time) was off a hundred.

    Finally the FTSE seems to be showing some signs of strength.

    Support is at 6175/85, 6045/50 then 5980/90

    Resistance is at 6295/00 then 6410/30

    DAX

    With the Euro strengthening against the dollar after the NFP number the Dax struggled to make headway and ended the session at 10105 off 100 points and we remain here this morning. This seems a little perverse considering that most other world markets have now recovered from the NFP shock. This said there seems little appetite from German investors just now as economic data starts to swing away from them. Germany’s very success leaves it uniquely exposed to the winds of Global growth.

    Support is at 10090/00, 10030/40 and 9880/90

    Resistance is at 10160/70, 10280/90 then 10350/60 and 10410/20

    Dow

    Hard to call (as always). The markets have the ubiquitous two way pull .. this time it is weaker growth pulling us down but interest rate immobility pulling us up. So long as the economy remains ‘reasonable’ such that there is little pressure on dividends etc then equities ‘should’ remain reasonably solid as the never ending search for some kind of return holds up the markets.

    With bonds and cash slowly deteriorating in value the equity world will continue to exert its siren wail.

    Support is at 17710/20, 17605/15, 17450/60 and 17330/40 then 17180/90

    Resistance is at 17870/80, 17915/25 and 18050/60

    FX markets

    Euro

    The lessening of interest rate expectation for the dollar had a dramatic effect on the Euro cross and we recouped much of the previous few weeks losses. The sudden move reflected the total surprise of the US data as I would estimate that most people probably thought that the number had more chance of being ‘better’ than expected rather than worse. In consequence there were almost certainly more day trader shorts than longs out there. The move higher after the release was a 45 minute sea of pain for the bears and this has continued today with the minor weakness overnight also being swiftly reversed this morning.

    Bulls should not get too comfortable though. There is still a good chance that the Fed will ignore the recent numbers and act aggressively.

    Support is at 1.1320/30, 1.1223/35 and 1.1110/20
    Resistance is 1.1365/75, 1.1460/70, 1.1590/00 then 1.1720/30


    Sterling

    This was the comment last Thursday

    Sterling is suffering again as the Brexit side seem to never admit to defeat. Considering that every single reputable organisation is adamant that the UK should remain in the EU and that leaving would be ‘disastrous’ the vote should be a complete no-brainer. BUT we are still getting the occasional poll showing that it is too close to call.

    The UK voters seem impervious to advice and are dreaming once again of a past that never really existed.

    The Cable cross surged on Friday in line with other dollar crosses but today is suffering again in the wake of the latest poll. Contra buyers are doing quite well though since the poll release as disbelief of voting intentions continues to swirl.

    Support is at 1.4380/90, 1.4320/30 and 1.4250/60

    Resistance 1.4460/70 1.4560/70, 1.4745/55, 1.4810/20 1.4915/25


    Gold

    The NFP data helped Gold out of its bearish trend as the pull of both a drop in the equity markets and the fading of interest rate expectations both helped us higher.

    Dealers continue to get longer and longer and the move up will have pleased 87% of clients! Since the shift higher we have naturally seen some profits being taken and so we are now down to just 78% of clients showing long intentions

    Support is at 1240/42 1228/30 1216/18, 1204/06

    Resistance is 1250/52 and 1266/68 then 1277/79

    Oil

    Another attempt at 50 dollars for the Brent contract and we are currently just above the mark once again.

    Since getting to this level some three weeks ago we have really gone nowhere. There have been a few attempts to push us back down again but none of these efforts has proed remotely successful.

    The bulls will be hoping that this repeated failure on the down side will at some point build to an attempt to break on the up.

    But for the moment selling on anything above 50 and waiting is proving profitable.

    Support is at 48.60/70, 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 50.70/80 and 52.05/15
     

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