The Stock Market is trapped within the Yin and Yang phenomenon

By: Regent_Markets

After a volatile 5 days, world stock markets just managed to close last 5 days in the black. It was a week of two halves with the good work from the start of the week being undone in the second half as traders slipped into reverse gear on Thursday and Friday. At least markets managed to hold the gains from the previous week which in the context of the bear market is no mean feat.

Markets shot out of the gates last Monday, and more importantly, managed to
hold those gains for most of the week. The news flow continued to be mixed,
but investors chose to take a ‘glass half full’ rather than a ‘glass half
empty’ philosophy. For example on Wednesday, markets were buoyed by the
better than expected US durable goods orders. Traders chose to focus on the
short term improvement in these figures, rather than the fact that prices
were down 22% since February 2008, registering their second largest year on
year fall. When confidence is shot to pieces, this positive spin would not
happen, but now the bulls have a spring in their step and are willing to take
some risks.

There was no positive spin to put on the failure of the UK government gilt
last week though. The gilt auction failure causes a volatility spike in
government bonds and across currency markets.

Ironically it is the financial sector that provided some stability within the
FTSE last week, with the momentum still behind a resurgent Barclays. Lloyds,
RBS, HSBC and Barclays finished the week up 27%, 5%, 5% and 52% respectively.
Barclays launched higher on the news that it is putting IShares up for sale,
and the buying continued when it was reported the Barclays had passed the
MPC’s stress test, which means it may not have to return to the market for
new funds.

Commodities had a mixed week with oil dropping around $1.50 on Friday, erasing
most of the gains made earlier in the week. Aside from economic factors,
President Obama’s fuel efficiency plans appeared to hit crude and gasoline
prices. Amongst other things, Obama has set a minimum requirement of 30.2
miles per gallon for passenger cars. The annual vehicle distance travelled by
US drivers was increasing at an almost parabolic rate until 2008, when the
total vehicle miles travelled dropped by 3.7% year on year. A continuation of
this trend, and US government support for greater fuel efficiency, could put
further pressure on crude’s nascent recovery.

On the currency markets, there was a big reversal of sentiment against the
euro, which closed down hard against the yen, dollar and even the pound.
Fears over the European economy intensified last week, increasing speculation
that the ECB will cut to 1% this coming week. Rumours of the ECB planning to
follow the MPC and FOMC in quantitative easing also hit the currency.

As usual with the first week of the month, the hot trading ticket this week is
the US Non Farm Payroll report on Friday, preceded by the ADP employment
change report on Wednesday. Aside from this, there is the ECB rate decision
on Thursday, and US pending home sales on Wednesday. The nationwide House
Price Index and Halifax House Price Index are both due sometime throughout
the week, and the G20 meeting on Wednesday could spring some surprises.

Last week, the so called “Dr Doom”, Nouriel Roubini stated that markets had
got ahead of themselves, with analysts starting to underestimate how bad
company earnings announcements will be in the coming months.

At BetOnMarkets.com, a One Touch trade predicting that the Nasdaq Composite
will reverse its rally, and hit 1475 at any time during the next 9 days could
return 112%.

By Mike Wright
Tel: +448003762737
Email: editor@my.regentmarkets.com
Url: Betonmarkets.com & Betonmarkets.co.uk

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