FTSE 100: Still range bound between 4225 and 4510 but with a downside risk. The market remains subdued at the moment with either level now providing a key directional indicator for the summer.
To be honest Murray’s Friday semi-final at Wimbledon was more interesting then analysing price action in the markets. With the US on holiday for Independence Day market activity was lacklustre.
The only asset class that has showed some sign of activity was the currency market, with the US dollar resurging as risk aversion comes back into vogue. The US dollar will remain a key topic of market headlines as we head into this weekend’s G8 meeting. As we have argued several times before the debate over the reserve currency, although meriting some airtime, is also being used as a jawboning tool by China, Russia and India in particular as they look to gain greater importance on the world stage. A change in a reserve currency takes many years to come to fruition and we would expect the rhetoric amongst politicians to start to die down soon even if academics would like to continue the discussion. However, trying to trigger a US dollar crisis is in no-one’s interest and despite the arguments that have prevailed over the last quarter the recent data would indicate that the holdings of US dollars has actually increased. The IMF at the end of June said that the share of dollars in global foreign exchange reserves increased to 65%, in Q1 2009, the highest level since 2007. If the summer is to prove one where risk aversion dominants activity then we can expect the
US dollar to rally back from its Q2 losses.
Economic data last week somewhat disappointed and this week we will get a greater feel for how the consumer is holding up, particularly in the US. Today, there is little on the calendar, but Tuesday sees the release of US ABC consumer confidence, Thursday ICSC chain store sales and Friday the release of July preliminary University of Michigan data. In between we have mortgage applications, consumer credit and housing data. In the UK, Tuesday sees the release of Nationwide consumer confidence and Industrial production. The later is expected to show some signs of further improvement as indicated by the recent BIPS/Markit and CBI survey. Wednesday, trade data is likely to show little change as its too early for the recent bout of sterling strength to
impact this data. Thursday, the BOE rate announcement no change is expected and we get the release of producer prices with inflation pressures expected to remain subdued. In Europe, industrial production and factory order data dominate activity; whilst we wait until Thursday for the ECB July Monthly report.
Sources: Reuters: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:
Please note this report provides a guide to some of the relevant areas that individual investors should consider discussing with an authorised adviser in relation to their specific circumstances, it does not constitute individual advice. As a result no action should be taken or refrained from being taken as a result of its content.
