Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

UK Gilt Bond Market Looks Vulnerable At These Better Levels

Interest-Rates / UK Interest Rates Jun 19, 2009 - 06:45 AM GMT

By: Seven_Days_Ahead

Interest-Rates

Best Financial Markets Analysis ArticleThe Technical Trader’s view:


MONTHLY CONT. CHART

 Like other bond markets, the Gilts are tempting the bears with the possibility of a Top.

The Double failure at 125 is very bearish.

But the initial pull-back from the highs at 125 has found support at the Prior High at 116.08.

But will that hold?

DAILY Cont. CHART

 [Daily continuation charts are needed in the absence of substantial price action in the front month contract.]

Note the interesting completion of a large Double Top (surely?) and then the retracement of the market recently back through the completion level at 116.52.

But only as far as the falling diagonal from the lows at 117.80 currently.

The Gap may yet be covered (requiring a trade to 117.77) but it may not.

And a new failure and descent back down through the 116.52 low would set the seat on a renewed and confirmed bear market.

Now look closely at the Sep 09  chart.

DAILY SEP 09 CHART

This too looks like a failure at a prior Low – entirely consistent with a solid bear trend.

Bears should wait for a confirmed close beneath that 117.05 level before selling.

The Macro Trader’s view:

The Gilt has rallied hard over recent days as traders have begun to doubt the strength of early signs of recovery in the UK economy. Only last week, traders were confident that several weeks of improving data was evidence the UK recession was coming to an end and an early return to growth was imminent.

With a substantial fiscal and monetary stimulus in place, traders we had been concerned the authorities wouldn’t act fast enough to neutralize this in order to prevent a fresh outbreak of inflation, which together with the worst peace time public finances on record, could have led to a vicious bear market in the Gilt.

The evidence for the growth optimism was clear:

  • Two months of better than expected PMI Services surveys which now predict a return to growth in the service sector,
  • Both the Nationwide and HBOS released house price surveys showing prices had increased month on month,
  • The RICS housing market survey has improved significantly over recent months, and
  • The NIESR GDP estimate looks set to predict either flat or a small positive for Q2 GDP.

 Other data has supported the recovery scenario too, especially the improvement in mortgage approvals.

But recently, sentiment in the US has turned mildly negative due to doubts that business spending will be sufficient to support recovery. Also, several key Euro zone data releases have shown the Euro zone economy is further away from recovery than previously thought. And with today’s UK retail sales report showing greater weakness than expected, traders are temporarily ignoring the stronger domestic UK data and reacting to international indicators and the Gilt is enjoying a recovery.

Yet the bear market in the Gilt can hardly be over. UK Government debt ratios are set to hit levels not seen since the First World war and if traders now doubt the strength of recovery, which we do not, those debt levels will only worsen.

Moreover, forecasts of CPI inflation falling to below 1.0% and close to zero have so far proved incorrect; CPI released on Tuesday, was worse than expected and rose from 2.0% to 2.2% year on year.

This makes it more likely than not that the current price action in the Gilt is only a correction. Traders hate out-of-control government borrowing and they also hate rising inflation. When the two are mixed it is usually a lethal cocktail.

If it were only the UK that was set to issue unprecedented levels of debt over the next several years, one could almost accept that the market could absorb it, albeit at slightly higher yields. But with all the major economies, especially the US with a $1.8T deficit in the same predicament, markets are only going to absorb the mountain of new debt at increasingly higher bond yields, and we judge the Bear market in the Gilt is only in its early stages.

Philip Allwright

By Mark Sturdy
Seven Days Ahead
Be sure to sign up for and receive these articles automatically at Market Updates

Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level technical and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

© 2009 Copyright Seven Days Ahead - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in