It’s amazing how politicians can’t seem to deal with the reality of concern in the financial markets. Dithering over a bailout of some form that clearly the Emerald Isle is in desperate need of as the bond markets scream “you won’t be able to survive without one”. The country will have to pay for years of profligacy which saw it get hooked on a property price boom fuelled by low interest rates. The Irish economy is similar to the UK’s in many ways and with the benefit of hindsight one can see that we would be in a similar pickle if we were a part of the Eurozone with interest rates so much lower than they were in the UK throughout the noughties.
The markets are having a minor relief bounce as we near a bailout for Ireland, but for some reason there’s a feeling that recent retracement has a bit further to go. Quite a bit has been wiped off the value of some shares in the last few days, in particular mining stocks. It isn’t just the prospect of European sovereign default that’s spooked the markets, but also the world’s fastest growing economy, China, reigning in lending and raising interest rates.
Some Asian markets have seen a correction of nearly 10% since the November highs were set. Not the Japanese Nikkei though which defied bears last night by bursting through the 10000 level to hit 5 month high. The recent dollar strength has finally given the Japanese index something to smile about, however it’s still a hefty 13% off its 2010 highs.
So for now the FTSE has bounced off support around the 5650 area just as it did in the latter part of October. This level also happens to coincide with the 23.60% Fibonacci retracement level of the July low to the November high so many technical analysts will be getting excited that this is a bounce off a technical level as opposed to market relief that a decision over Ireland is imminent.
In the UK retail sales and the public finances data will be a focus of this morning’s session and then later we get the weekly US initial jobless number.
Despite giving up a little ground to the euro and sterling the dollar is holding its own against the yen. EUR/USD remains a long way off the 1.4000 level and despite being below the…
