It's better to travel than to arrive
Thu, Feb 5 2009, 06:00 GMT
by Lloyds TSB Financial Markets Economic Research Team
Market overview
This old market saying has relevance to the current position of the financial markets and particularly sterling. Last year the equity markets plunged and bonds yields were pushed to wafer thin levels as the market was preoccupied with survival and protection of capital. Whilst this is understandable from a short term scenario, the next few months will be important to see if that capital would be better rewarded elsewhere. The current indications paint a more positive picture, even if they remain tentative.
Firstly bond yields continue to rise in core yields from the two year towards the most sensitive 30 year space. This needs to be explained as it is possible the market is tentatively looking for bargain basement opportunities outside of the safety of fixed income.
Secondly, the commodity markets continue to base and push higher despite the bearish sentiment. Oil is a notable laggard, but the bears should have firm control of this as I haven't heard of a single short term bull, yet the market remains above $40.00.
And finally sterling, the "ultra cyclical" currency that was bashed by everyone from hedge funds to the man on the street has continued to rally against the major currencies together with the crosses. Sterling swiss in particular looks set to break a key level at 1.700 completing a base with euro sterling potentially heading back to 0.8279 over the coming months.
The areas to watch into next week are the commodity currencies as they have similar catch up potential to sterling. Also of particular interest is the Norwegian krone where a return to a bull run in the energy market would see a strong recovery. A lot hangs on core equities holding current supports, but the strategy holds whilst above 8,000 in the Dow and 4,000 in the FTSE.
There will be time to reverse if this doesn't work and indeed it may well prove to be a short lived scenario, but for the moment the market is showing positive signals that are being burried in a deluge of bearish sentiment.
