Markets held the previous weeks gains to close the week higher for the third week in a row.
The VIX Options Volatility Index, a good measure of market fear and
complacency, now stands at levels not seen since late December 2007, around
the time that the Dow Jones fell nearly 2000 points in less than a month. Markets were in rally mode after the better
than expected US jobs report, and news of more liquidity injections from the
Federal Reserve. The stand out announcements come on Thursday from a
European perspective with the Bank of England announcing their latest
interest rate decision. UK home
builders such as Persimmon and Barratt Homes stemmed the flow last week with
small losses, but they may have much further to go if the US housing stocks
and dramatic house price collapse are anything to go by. The overall trend of an increasing weakness in US job creation
remains. The Federal Reserve did what most traders were expecting
them to do in cutting rates another quarter percent down to 2%.”Sell in May” says the old stock market adage, but the bulls were in no mood
for old wives’ tales last week. Indeed last week
more data was released supporting anecdotal evidence that the housing slump
has indeed started.
While another 2000 point drop may not be in the offing, there are growing
indications of complacency in this rally.00 a barrel. Oil dropped down to near $110 at
one stage, but recovered to finish the week down around $3. Volume has been healthy and the twin inflation evils of Gold and Oil
are continuing to deflate from their highs.
“The worst is behind us” rhetoric continues to flow from central bankers on
both sides of the Atlantic. This trade could
return 160% if markets pull back significantly from their current levels.
One rather speculative trade may be to place a one touch bet that the S&P 500
will touch 1350 in the next 16 days at BetOnMarkets. Gold
faired the worst of the pair, closing at its lowest levels for 2008, just
above $850. Private payrolls have fallen for
five straight months, and weakness in the goods producing sector is
After the deluge of data that hit last week, the forthcoming week is at least
reduced in its intensity. The jobs numbers were not as bad as expected, but
the figures still make for grim reading. The FTSE rose 2%, but the
biggest gainers were tech stocks with the Nasdaq 100 putting on 3% for the
week. With UK house prices showing their first
year on year decline for decades, and US house prices down 12% by the same
measure, it is only going to get worse for house building stocks. Banks again gyrated as Mervyn
Kings testimony before The Treasury Select Committee, provided a steady flow
of warnings about the UK economy. Any home owner Extruder Barrel hoping for a return to
attractive rates of recent years will be disappointed after King made it
clear that the Bank of Englands recent liquidity plan wasn’t aimed at kick
starting British Mortgage lending. Analysts are expecting the MPC to keep rates on hold
as they balance the tricky terrors of inflation and an economic slow down.
The ECB are also holding a press conference an hour and a half after the MPC
It wasn’t plain sailing for all of last week.
If we take a step back from the euphoria, there is certainly room to question
the bullish case from here