Overview
Improbably tiny ranges for many instruments this week, especially stock indices where for example the Dow Jones Industrial Average held within just 130 points. This effect was seen across the board and while there is nothing about this in textbooks candle theory hints that this is probably due to low volume and is symptomatic of a market that has lost its way and/or is gathering energy for the next move. Again a handful of indices posted new highs for this year, FTSE100, Helsinki, Nasdaq and Sweden among them. Money market futures are consolidating under this year’s record highs, likewise fixed income yields which backed up from recent lows. Commodities were quiet, consolidating neatly within established bands, though Softs appear to have formed important long term tops and ICE Sugar has lost 37% of face value since February’s multi-year peak, down to 18.80 cents per pound, its cheapest since August 2009. Baltic Freight rates have inched up since mid-February, Handysize now highest since September 2008, but even so it appears that we are still not at breakeven levels for many operators.
Political and Economic Developments
International trade seems to have taken a bit of a hit if this week’s figures are anything to go by. France’s January balance in the red to the tune of €3.68B, better than the previous month and smaller than the record -€6.21B of October 2008, but nothing like the average -€1.2B of the ‘noughties’. Germany’s surplus shrank to €8.0B, also almost the lowest of the last ten years, with imports up 6% and exports down 6.3%. Not to be outdone the UK managed a £7.99B gap, just a whisker from September 2007’s record -£8.28B, despite sterling losing 25% of its value on a trade weighted basis in the meantime. Even China, on which all too many hopes of economic recovery are pinned, managed a February trade surplus of just $7.61B, way down from November 2008’s peak at $40.09B and close to the lower levels since 2004. Only the US has shown a significant improvement over the year, trade deficits shrinking to roughly $35.00B from 2005-2008’s average closer to $64.85B.
Underlying Themes
Bankers and their bonuses broke the banks. Time for footballers, their wages and transfer fees to bankrupt their clubs? Last month bottom of the UK Premier League Portsmouth FC went into voluntary administration with debts of £78 million, a move HM Revenue and Customs are taking to the High Court next week. Their manager, Avram Grant (who likes massages), not surprisingly is not prepared to commit to the club because ‘we don’t know what will happen…(or) who the new owner will be’ - presumably another rich bloke with a big ego. Other debt-laden clubs include top-ranked Liverpool and Chelsea (though it is assumed that Russian oligarch Abramovich has such deep pockets the issue will not arise). And now Manchester United fans are drumming up support to wrestle their beloved club from the clutches of the foreign Glazer family and cut it loose from the £716 million debt. Leading the charge is ‘Red Knight’ Jim O’Neill of Goldman Sachs, yes he of the firm that does God’s work. Let’s hope this PR exercise goes better, the cynical view says, though he does have supporter’s credentials.
What to watch for next week
Sunday Daylight Saving Time starts in Canada and the US. Monday Eurozone Q4 Employment, US January TIC Flows, February Industrial Production, Capacity Utilisation, Tokyo Condominium Sales, Japan Consumer Confidence, UK March Rightmove House Prices, US Empire State Manufacturing Survey and NAHB Housing Market Index. Tuesday UK January DCLG House Prices, EU27 February Car Registrations, EZ16 CPI, US Import Prices, Housing Starts, Building Permits, German and Eurozone March ZEW Surveys, and the FOMC is expected to keep rates at 0.25%. Wednesday, St Patrick’s Day, Japan January Tertiary Industry Index and the Bank of Japan concludes a two-day rate-setting meeting, Minutes from the Bank of England’s March 3rd/4th MPC meeting, UK January Average Earnings, February Unemployment, EZ16 January Construction Output, then US February PPI. Thursday Eurozone January Current Account, Trade Balance, UK February Mortgage Approvals, M4 Money Supply and Public Finances, CBI March Industrial Trends, US CPI, Leading Indicators and March Philadelphia Fed Survey. Friday mercifully quiet with just Japan All Industry Activity Index and German February Producer Prices. Monday 22nd Japan Vernal Equinox holiday and South Africa Human Rights Day.
Positioning and Technical Analysis
Treasury yields should hold at current levels while money market futures should start recouping the little ground lost over the past fortnight. The US dollar is expected to weaken and though ‘commodity’ currencies led over the last five or so weeks it might be time for the laggards, sterling and the Euro, to do some catching up; the yen still the wild card. Precious metals look set to rally further, some probably inching to new highs for the year. Indices are precariously poised and many are expensive; this does not mean they therefore will lay down and die. Proceed extremely carefully until the end of this month.
