Stock Market Update 23 November 2012

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Stock Markets: 23 November 2012

Today could be fairly quiet as the US remains on holiday and volumes have been on the low side throughout the week.

A degree of risk-on sentiment has already fizzled out this morning, with the euro and stock market indices giving back early gains, but the markets seem to be well supported for now.

After the strong gains of the past few days, it shouldn't come as too much of a surprise to see some profit-taking ahead of the weekend. However, these rises caught many people by surprise and the turnaround could not have come at a better time for our clients.

The story of 2012 seems to have been that, despite suffering from some sharp declines, the markets haven't really seen the sort of follow through that we have had in previous years.

The support provided by central banks has been one of the overriding factors that has prevented those worrisome sell offs from really getting a grip and becoming the next major bear market.

As a result, markets have remained reasonably range bound; they may have occasionally moved into negative territory but seem to have returned back into profit shortly after.

Today's news flow is unsurprisingly focused on the EU budget negotiations. No matter what the outcome, a substantial amount of money will be spent on mind-boggling projects that seem to serve little purpose other than to simply spend the cash so that it's not cut back in seven years.

Considering the austere times we face, there really should be some sort of concession from the EU. It seems unreasonable for them to ask for more money when swingeing cuts are being made across Europe at the national level.

This morning, the FTSE is a handful of points lower at 5785, whilst the DAX 30 has slipped by 15 points to 7230.

Today will see the release of the German Ifo Business Climate which is expected to post a decline and may partly explain this little show of weakness.



Stock Markets: 22 November 2012

Today the focus remains on Europe, although not because of the Greek negotiations, but rather the setting of the EU budget.

We already know the UK's stance, and it's hard not to think that an increase in the overall EU budget is a little rich when every single member state is cutting back its own spending and raising taxes. Particularly when you consider the sort of austerity that the periphery is enduring.

Some sort of compromise will be achieved, as it usually is, but it might not be this week.

The initial noise from the EU is that a budget cut of some sort could be achieved and, more importantly, the UK will maintain its rebate. However, the negotiations will not be easy as our Dave is very much in the minority.

Things are all quiet in the US as they shut up shop for Thanksgiving and so we can expect the last two sessions of this week to suffer from woefully low volumes.

On the whole, volumes have not impressed this week, leading many to call the recent strength into question.

Nevertheless, that strength has continued this morning, with the FTSE edging 20 points higher to 5770, in what could be the fourth consecutive day of gains for European indices.

It's a far cry from a week ago when investors were running for cover and, considering the current news flow, one has to admire the resolve of the bulls in the face of some considerable risk events.

Asian indices showed some signs of life overnight following some strong manufacturing data from China, with the HSBC PMI survey moving back above the 50 expansion level.

This also came on the back of a gain for US indices where the Dow Jones continued its bounce, adding another 50 points to 12,836.

In the run up to the Thanksgiving break, 24 of the 30 Dow Jones constituents gained ground, mostly on reports of a ceasefire in the Gaza strip.

Further advances were limited by the lack of agreement to release emergency funding to Greece and the ongoing nervousness regarding the fiscal cliff.

Today there's some European economic data due in the form of PMI surveys and we have already seen France release slightly better-than-expected figures.

We will also have PMI data from both Germany and the Eurozone as a whole, and these are both expected to improve slightly but remain below the 50 level.

Then, later on this afternoon, Eurozone consumer confidence is predicted to remain well below the longer-term average.

With all that's happening on the continent, it's hard to see this significantly improving any time soon.



Stock Markets: 21 November 2012

This morning, the European indices have followed suit and started the day in the red with the FTSE trading at 5730 at the time of writing.

For the bulls to remain in control they have to take the stock market index higher and test the near term resistance seen around the 5790 area. Meanwhile to the downside, support is seen at 5660 and 5600.

Later this morning sees the Bank of England release the minutes from its last meeting where it kept policy measures on hold at a time when there were quite a few people expecting them to extend their asset purchasing program by another £50bn.

The vote is expected to come in at 8-1 but investors will also be interested to hear more about the plans by the BoE to give back the coupon income it earned on its gilt purchases. That came to some £34 billion and is, in itself, a form of QE.

Later on we get the initial jobless claims data from the US, this is a day early and ahead of their Thanksgiving holiday. There is also the University Michigan confidence survey and a smattering of US numbers to focus on.

Also see Another Greek Debt Write-Down Could be on the Cards.



Stock Markets: 20 November 2012

The FTSE did open lower and is still in the red by some 15 points at 5720. However, we have already recovered from a low of 5711, so it would seem that there are still a few bulls around, even after yesterday's big move higher.

For technical analysts, the rally was a very bullish move, with a large engulfing candlestick complementing the hammer formed on Friday.

With Thanksgiving ahead, things may calm down as the week progresses, but it will be interesting to see how US indices react at today's open and whether they add to yesterday's gains.

The time around Thanksgiving has historically been quite bullish for the US equity markets. At the time of writing, we are calling the Dow to open 45 points lower at 12,750.

For more, also see French Credit Rating Downgrade Has Little Impact on EUR/USD.



Stock Markets: 19 November 2012

A bounce in risk assets, following days of declines, is the first glimmer of life we've seen in shares for quite a few sessions.

US indices managed to hold onto slim gains on Friday after news that progress was being made on the dreaded fiscal cliff. The Speaker of the House of Representatives made comments suggesting that talks with President Obama had been constructive.

At one point, it looked like the bulls would be unable to gain the upper hand, however, they finally saw enough momentum to end the week on something resembling a high note.

The big question for investors is whether this bounce can be sustained as rallies over the last few weeks have been very short lived. In addition, when looking at the near-term chart, the trend still appears to be very much downwards.

However, Friday's promise from US politicians that they will work through the Thanksgiving holiday seems to be giving bulls a reason to dip their toes back in.

Despite that, things may be pretty quiet as the US celebrates Thanksgiving on Thursday and Friday, although this period has historically been fairly bullish for US stock markets.

Last year saw a bumper Thanksgiving holiday for retailers, as consumers across the pond gorged themselves on presents, primarily online.

This festive period is likely to be another real test for those retailers that do not have a strong online presence.

The Dow's strength has filtered through to this morning's European session, with the FTSE edging higher, and even moving above our earlier calls, at 5660.

Bulls will be hoping for a test of resistance around 5700 and then 5780, which would represent a reasonable fight back, but the bears will be looking towards the recent lows around 5600 and then 5540.

With the US shutting up shop at the end of the week, volumes could be low throughout as economic data is relatively thin on the ground.

We will see some US housing data this afternoon, but there won't be any noteworthy European data today.



Stock Markets: 16 November 2012

Spread trading investors really are being pummelled from all angles at the moment, with the fiscal cliff in the US, the Eurozone debt crisis and rising tensions in the Middle East.

So far, as we near the conclusion of 2012, the markets are not playing out in the same manner as the previous two years.

In 2010 and 2011, there was a building sense of optimism about the year ahead in terms of growth and prospects for the stock markets.

This positive sentiment was fairly evident despite the year end rallies ultimately being rather mixed, with the exception of a strong rise for the FTSE in December 2010.

Unfortunately, in an almost carbon copy of each other, that optimism was swiftly snuffed out at the beginning of the following years, causing confidence to take a dramatic dive.

This year however, at least for now, there's very little optimism about the year ahead and, for many, it's the complete reverse.

A few weeks ago, we completed a survey of 200 fund managers which showed that the majority were optimistic about the UK economy going forwards. If we were to do the same survey today, I imagine that the results would look very different.

The prospects for 2013 aren't looking all that bright when you consider how sentiment is currently shaping up.

The major issue is that, whilst the fiscal cliff hasn't actually happened yet, no one really knows what it will mean for the US economy.

We've also just emerged from a disappointing earnings season and corporate profitability is unlikely to get much better in the face of looming tax hikes and spending cuts.

All this is enough to make any investor nervous and question how exposed they are to equities.

This morning, the FTSE is just about making an effort to climb into positive territory, up 5 points at 5680. However, considering all the things that are going against the market right now, it will be interesting to see just how long this mild gain lasts.

In the near-term, support and resistance is seen at 5625 and 5775 respectively.



Stock Markets: 15 November 2012

Unsurprisingly, European indices are in the red this morning following the Dow's sell-off, which saw the US index fall by almost 200 points to 12,570.

At the time of writing, the FTSE 100 is trading at 5690, below the 5715 support level that the CFD market had successfully bounced off twice in the past week.

The weakness across the pond has finally seen the FTSE 100 break the back of that level and so near-term support is now seen at 5630 and 5590/00. Resistance is seen 5780 and then 5850.

We had been calling the FTSE 100 to open lower at 5660, so there may be a little something for the bulls, but the index has also fallen below its 200 day moving average. This could provide the bears with fresh momentum and a close below here would be a pretty negative signal.

This morning, we have seen a mixed bag of European GDP numbers. France and Germany have surprised to the upside, but Austria slipped into negative growth and Spain confirmed its fifth quarter of recession.

The bottom line is that there's no growth across Europe as a whole and the Eurozone GDP figure at 10am is expected to be firmly negative.

Also this morning, UK retail sales will be released at 9:30 and are expected to show a month-on-month decline after the good bounce seen during the Olympics. Nevertheless, there may be a surprise to the upside as the UK labour market remains quite resilient.

Also see today's update on the US Fiscal Cliff.



Stock Markets: 14 November 2012

There are a few important pieces of economic data on today's agenda, with UK unemployment figures and then the BoE's inflation report.

Although these are unlikely to significantly move the FTSE, they may have an effect on the GBP/USD pair.

This afternoon will also see the latest US retail sales figures, which could move US markets later on.

Of course, Hurricane Sandy will have had a major affect on retail sales and so expectations are for a decline in the month of October.

For those interested in the latest trends, please see FTSE 100, DAX and Dow Looking Bearish.



Stock Markets: 13 November 2012

Things really aren't improving much in the Eurozone and it's starting to spook investors again.

Since Mario Draghi said he would do whatever it takes to save the euro earlier in the summer, the FTSE 100 has enjoyed a rally of some 13%. However, after reaching the recent highs over 5900, the index has now given more than 3% back.

Many would argue that we are only at the beginning of a larger corrective stage and even the contrarian bulls can't seem to stop the selling right now.

Our earlier calls saw the FTSE 100 open lower but the market has headed even further south since then. At the moment, it looks like the UK index wants to test last Friday's intraday lows around 5715.

The wrangling between the EU and IMF about how to deal with Greece's debt in the more immediate future is pouring cold water on sentiment.

The troika cannot decide whether to extend the state's debt to GDP target, i.e. kick the can down the road, or make creditors take yet another hit. This would mean the ECB itself taking the brunt of the pain, which is something that Germany is very reluctant to see.

On the subject of Germany, for all the pain and austerity it is imposing on Europe, it doesn't seem to have learnt that the measures aren't working. The country now plans to balance its own books in 2013 by imposing further austerity upon itself.

It makes sense for them to lead by example, however, the fiscal tightening could very easily send them back into recession. That certainly wouldn't do Chancellor Merkel's re-election hopes much good.

The FTSE 100 has also been hit by poor corporate numbers from Vodafone, a stock that had been considered able to weather the storm somewhat.

Nevertheless, today's figures showed a terrible second quarter for the firm, which is reeling from having to make large write downs across its Spanish and Italian units.

Today sees UK inflation data, which is expected to show a little rise from its November 2009 low of 2.2% to 2.3%.

The tussle between higher food prices and an increase in tuition fees is expected to smother lower petrol prices.

It will be interesting to see which side wins and whether we bounce or take one step lower towards the 2% target, something that hasn't been seen for years.



Stock Markets: 12 November 2012

The financial markets just seem to be consolidating following a very volatile week which saw things getting rather messy at one point.

On Friday, US indices at least found a degree of composure despite ongoing bickering between the US President and the House of Representatives over the fiscal cliff.

As a consequence, the Dow Jones closed rather flat at 12,815 but posted a significant overall drop for the week.

Considering that November has historically been more positive than not for equity markets, the bulls will have to work hard to get the indices back into positive territory.

The Dow Jones is already more than 2% lower, whilst the DAX has fallen by over 1%. Interestingly, however, the FTSE is actually pretty flat, having started November roughly where it stands this morning.

Friday's move for the Dow is of particular interest as it formed a doji candlestick on the daily Dow chart. This is often seen as a neutral pattern by technical analysts but could also be a precursor to a change in direction.

So far this morning, we are seeing a little bit of positivity, with the FTSE creeping ever so slightly higher.

At the time of writing, the index stands at 5780, up a handful of points following a relatively quiet weekend.

Having said that, we did see some developments in terms of the Eurozone crisis, as Greece passed its latest budget package to pave the way for the next tranche of bailout funds.

The EU will be a hot topic this week but more in terms of politics, as negotiations regarding the budget increase continue following their collapse last week.

The UK will be fighting its corner to request a real term cut, at least that is what parliament voted for, and there will also be talks over capping bonus pay.

Neither will have any impact on the financial spread trading markets, however, they are interesting developments in the European project which seems to be increasingly seeing the UK as a thorn in its side.


By Simon Denham, 23 November 2012


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