Financial Betting Articles

The Eye of the Storm?

Last week's market action seemed gentle as a breeze compared to the hurricane-force antics of the previous fortnight. We've even been able to start rehabilitating our traders who turned to jelly as the chart lines dropped through the floor. The important question now is are we sitting in the eye of the storm or are we back to plain sailing?

Relative tranquillity has return to the world of finance because the credit crisis has stopped chucking out bad news. Central banks provided liquidity and chopped rates, closing rank in order to weather the storm. Bank of America has swept to the rescue of imperilled US mortgage lender Countrywide Financial by buying a $2 billion chunk of it. While all this has been going on, the Bank of England has remained aloof, allowing the credit market (over here at least) to sort itself out.

But is it too soon to think that things are back to normal? For one, hedge funds managers tend to be a secretive bunch and we won't know the full impact of the crisis on them until they deign to report it. If a big fund stable collapses then we will be right back in the thick of it.

Secondly, the molly-coddling of the central banks could actually make the problem worse - if lenders think they will always be bailed out of a crisis, then irresponsible lending will continue. If the weaker operators had been allowed to go to the wall this time, it could have saved a much bigger disaster further down the line. The solution isn't to hand out sweeties to all the naughty kids - with banks as with small children, the only way they'll learn is to lock them out in the cold all night, every night for at least a week.

But as I've said before, what really matters is how companies are doing. If the housing market is improving, if consumers are confident and if business profits are healthy you can stick your credit crunch in your pipe and smoke it. And companies like BHP Billiton are leading the fight back for the major indices with bumper profits announced. This week we have US and UK housing and consumer confidence figures out and these will surely boost or depress the market depending on what they say about the long term economic outlook. Thursday sees data on US corporate profits which is a great gauge of how business is faring stateside.

As ever though, monetary policy could blow things off course so and Thursday's Fed meeting minutes should come with a gale warning. Similarly, money supply figures in the UK this week will provide a clue to if the Bank of England need to change the interest rate this time around.

So the sun has come out but the forecast is that there is potential for an occasional heavy downpour - and if you can spot it coming, you can make money out of it.

Last week the FTSE traded in a 255.4 tick range compared to a 443.2 tick range the previous week and a 368 tick range for the week beginning the 6th August. Since its peak of 14,121.04 on 19th July, the DOW lost 11.8% if its value and at the close on Friday had regained 5.3%.

Peaking at $78.77 per barrel on 1st August, the price of Brent Oil has fallen 10.3% since then as Hurricane Dean decided not to wreck oil production in the Gulf of Mexico.

Friday say the Yen hit 14 month highs against the Dollar as the carry trade unwinds and the Yen is seen as a safe haven currency amid the current turmoil.

England goalkeeper Paul Robinson can lose concentration during games for periods up to 24 minutes.

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