FTSE 100 Morning Comment - Budget Day

There remains a great deal of apprehension within the market place since we’ve seen a decent rally from the lows set in the middle of last week.  Those bulls who jumped in around the lows of 5500-5600 will be rubbing their hands with glee and many would have been waiting for such a correction in order to add to existing long positions as opposed to having to pay 400 points higher than where we were a month ago.  Even though the causes of the substantial declines a week ago are desperately sad and unfortunate, if it wasn’t the people who’ve bought in the last few days pushing us higher it would have been someone else.

So we’re nearly back to where we were before the earthquake hit when the FTSE 100 (UKX) was around 5850 and it’s natural for a market that’s seen a few days of substantial gains to take a bit of time to reflect.  The 5800/50 area was a significant support level so now, as technical analysis theory dictates, it’s a significant resistance level.

This morning the FTSE is at 5745 and bulls will be hoping that support seen around 5690 will hold.  A break below here could see us test 5580 and even the lows of last week. 

So all eyes on the Chancellor today, but before he delivers his second ever budget we get the release of the BOE minutes this morning.  These will be very interesting to see whether anyone else has joined the hike camp with votes previously having been split 1 (more QE), 5 (nothing), 2 (hike by 0.25), 1 (hike by 0.50), so should we see a 1-4-3-1 then we could see further strength from sterling and it makes a rate hike this Spring all the more probable.

When the Chancellor stands up at 12h30 London time today unfortunately we cannot expect any sort of tax reductions or early Easter presents as he will remain vigilant about the approach the coalition is taking on government spending cuts.  You can’t envy his position especially after yesterday’s inflation numbers which are set to put more pressure on the British consumer and therefore the recovery.  On top of this the PSNB was much higher than expected meaning the public sectors insatiable appetite for sucking up funds is far from over.  Sweeteners such as reduced red tape here and no fuel duty hike there might make a few more people happy but whichever way you look at it this won’t stop people getting upset about the spending cut plans, plans which the majority seem to have forgotten that they voted for nearly a year ago! 

The euro is under a little bit of pressure this morning as all eyes are on Portugal’s austerity vote today with the chance that it won’t be approved by their parliament and ultimately could lead to a bailout.  It could also trigger a resignation of the President and the beginning of a general election which might prove embarrassing at this week end’s EU summit.  EUR/USD is at 1.4190 this morning so eyes are on 1.4215/50 to the upside and 1.4100/1.4040 to the downside. 

Japan’s government has put an estimate on the damage so far at around $309bn and we’ve seen the Nikkei drop 1.6% this morning, pushing investors back into the safe haven currencies.  As a result the yen gaining a bit of traction against the dollar to 80.83.  

Gold is yet to outdo its record 1444.9 per ounce which was hit March 7^th and at 1428.4 currently, is it still way off.  However, US forces have spoken of further strikes against Libya very shortly and this might push investors back into safer assets such as gold.  Technical analysis shows potential upside looking for 1432 with 1412 as support. 

Angus Campbell