Who Is The Ftse Trying To Kid?

We admit it; were baffled but were nowhere near changing our views

. Those were the words of an analyst at Deltacontinental after the FTSE 100 surged through its 200 and 400-day exponential moving averages and a slow stochastic reading above 80 suggested the market is not overbought. The analysts bemusement could be justified because lets face it, theres not much in the way of good news from the UK economy or, for that matter, most of those in other developed nations. Statistics seem to point to a definite slowing of the pace of economic recovery in the developed world but global exchanges continue to grind higher albeit on anemic volume.

The UKs hard times are about to get far harder. Already the countrys TUC (Trades Union Congress) has served notice to the coalition government that they are going to coordinate public sector strikes as part of an overall effort to resist austerity and a raft of public service cuts aimed at cutting the budget deficit. Regardless of who is right or wrong, if the supposition that the stock market reflects investors expectations some one or two years hence, surely they cannot believe that the government will have stayed on track with its spending cuts all the way through to 2012? Surely the big UK banks wont have decided to bring lending back to anywhere near pre-crisis levels. Surely interest rates will have been forced up by next year.

One Deltacontinental analyst suggested that the surge in the FTSE was not really reflective of the outlook for the UK given its composition. Many of the indexs components are mining giants, pharmaceuticals, big oil and others that earn money from operations abroad and as inflation and growth in, say China, is continuing at a fair clip, investors like Rio Tinto and Royal Dutch Shell as plays on the commodities bull market, he said.

Deltacontinental say they remain bearish on the UK economy because of deep structural imbalances such as the chronic over-indebtedness of both the government and the people. The stock market, they suggest, is being set up for what they call an almighty fall and the firms analysts are apparently busy preparing entry points for what they refer to as the mother of all short positions. Frankly, the FTSE has no business being at 5550. Investors appear to be giving it enough rope to hang itself and were going to be there to help kick out the chair, said the analyst.

by: Adam Warner

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