It has been a week of ups and downs with the net result of half a point gain for the FTSE.   The UK papers are starting to talk about the end of the recession.   Starting from the seventh of may there have been five occasions where 4500 has been broken (or within 5 points), but each time the market has retreated.  This has now become a very strong resistance level.  If the market cannot go higher than 4500 then the other option is for it to go lower. One headline today comments that one house in ten in the UK has more owing on it than its current valuation. (One in eight in the US).

For all the hype in the market, the underlying data is not so hot.   Yes the initial unemployed did come in less than expected, but it was still over 600,000.  Household wealth fell by 1.3 trillion in the 1st quarter according to the FED.  That is a lot of wealth that is not available to spend.  Another headline on Bloomberg today was that forclosure filings top 300,000 for the third straight month in May and may hit a record 1.8 million for the first half of the year. Yikes, this does not bode well for house prices recovering in the near future.

We have yet to have the fall out from the GM bankruptcy hit the unemployed numbers.  It looks like Chrysler can go ahead with its sale to the Fiat, US & Canadian governments, and of course the AWU.  How they can get away with putting an unsecured creditor ahead of secured creditors is unbelievable.  Would make anybody think twice about taking a “secured” position with any company now.  We will have to see if it affects future “secured” transactions.

As we come to the expiry of the June futures and options this Friday it is interesting to note that the September futures are trading at a 40 point discount to the cash.  So the futures market has yet to factor in a recovery.  There are more comments about this being a W shaped recovery, so far we have only seen the V shape.  The second down leg can not be too far off now.