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Tuesday, May 13, 2008

Oil ticked lower

US markets began their day positively after a better than expected retail sales report and some rallying talk from Fed Chairman Bernanke. Stocks started well as oil ticked lower, but sentiment has now turned decidedly negative. One factor may be the unusually low levels of volume on the US markets. Yesterday had the lowest volume for 2008 on the New York Stock Exchange, which could be an indication that the recent rally has run out of steam or worse, was built on flimsy foundations. Since 1980, the lowest volume days usually happen in the second half of the year, especially summer as traders take their holidays. In fact, the lowest volume day has occurred between January and June just twice since 1980 and on both occasions the market made no further progress for at least 9 months.

The FTSE continues to be the sick man of Europe as poor housing data combines with 3% inflation to create the haunting spectre of a return to 1970’s style stagflation. The pound is slipping fast to the 1.94 level against the Dollar, a key support level for the last 12 months. Any drop below this point could be bad news for UK tourists as the holiday season approaches.