Yesterday saw a bit of a rout in the markets as the sellers came out in force to push indices lower as bad news after bad news hit the news wires. 

A terrible Italian bond auction, bad news from a Greek poll, spiking Spanish bond yields and economic sentiment data that would have shocked most pundits as it hit a two and a half year low was all a toxic set of ingredients that sent investors running for cover.

We’ve seen a raft of bad economic data releases this week, most of it on confidence and sentiment.  It comes as little surprise that on the continent, across the pond in the US and now today here in the UK, consumer confidence has risen but still remains in the doldrums.  In the US there’s real worry now that the labour market might just be coming off the boil and whilst it’s probably OK enough to get Obama re-elected in November, it is not looking good beyond there.  The new/incumbent President will have to address the small issue of their monumental debt problems which, as we all know, has been a struggle to get anything agreed between the Democrats and Republicans, and last year saw them lose their triple A credit rating.  Europe speaks for itself really and it’s not surprising that confidence there is completely shot to pieces.  For the UK confidence has been given several blows by the double dip recession that’s even worse than previously thought because of the dire straits that the construction sector is in, a eurozone crisis that is worsening by the day and an inept coalition government that seems to be continually shooting itself in the foot.  Consumers also have to deal with the barrage of rising energy prices and falling real incomes which is enough to dent anyone’s feelings.  But at least there’s a small glimmer of hope in that the extended Jubilee week end coming up might just give everyone something to cheer up about, albeit for only a few days.

This morning we had been calling the FTSE to open lower by some 12-15 points but in the past hour and a half a few buyers have been creeping in and we’ve opened in the black, up some 35 points at 5330. Clients were buying yesterday as the markets sold off, trying to find the bottom in the hope of a bounce and so far we’re seeing that boldness pay off to some extent.

There are lots of things to focus on today with the first one being the Irish referendum on the new EU fiscal treaty.  Ireland loves a referendum on EU treaties and of the five they’ve had since 2000 only three have gone with the yes vote.  Today’s though is expected to be accepted by the people although there’s a threat that low turnout might challenge that.

On the economic data front the focus is on the US with the ADP payroll number a day later than normal because of Monday’s bank holiday there.  Last month’s number was down on the current yearly average and today is expected to improve on 119k coming in at 148k.  Then there’s the 2nd release of US GDP which is expected to suffer a similar fate to the UK’s economy, as in it is expected to be revised downwards to 2.0%.

Market sentiment towards the euro zone is getting worse as indicated by the rising yields in the Spanish and Italian bonds.  The threat of contagion is in the limelight with many wondering if the genie is not out of the bottle again.  No wonder the euro saw another sell off versus the US dollar, 117 pips to 1.2368, not far from the intraday low.  Could a positive US nonfarm payrolls report out this Friday or the ADP figure today put a stop to this slump?

For once gold prices moved higher, gaining $9 to $1563 amid signs the European debt troubles are worsening.  It has done that despite a stronger US currency which makes the dollar denominated gold look more expensive.  The fear factor might have played its part, reaching a certain level where investors felt the need to search for safety apart from the greenback.

The energy sector was on the receiving end yesterday as the deepening debt crisis in Europe delivered further blows to the WTI crude prices.  It was a nosedive of 3 bucks to $87.82, the lowest level for more than six months and surely the fundamental picture with supplies plentiful and demand stubbornly weak does not help.  This Friday all eyes will be upon the US employment report which should trigger an immediate reaction in crude oil prices one way or the other.

This comment is from Capital Spreads.

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