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Market Comment 10th Aug 2012

The economic data nowadays doesn’t come as much surprise and it’s almost as if investors expect to see disappointing figures on a regular basis.  

Yesterday’s trade numbers for the UK did not make for great reading showing that exports had declined far more than expected and this time not just to our friends on the continent but outside of Europe as well.  We can only but hope that the Olympics will give a boost to our exports going forward however for now people beyond   our shores are not rushing to buy the best of British products.  At least the figures were not as bad as the headline might suggest with the rate of decline in goods exports being half that it was following the financial crisis back in 2009.  We do of course also have to factor in a bit of Diamond Jubilee into the equation as this has had a knock on effect for industrial and manufacturing production, but as the most recent figures showed, not as bad as had been expected.

But really the UK data is piecemeal compared to the Chinese figures which the markets are focusing much more on.  Here their export data produced rather a shock and this is causing the sellers to creep into the European markets in early trade this morning.  In recent months we have seen bad economic numbers actually prop up the markets as investors consider the prospect of further stimulus from central banks but for this time at least we see a little more concern about the world’s second largest economy just knock the confidence of the bulls.  That said we are yet to see any substantial move to the downside since this little risk rally commenced at the beginning of July, apart from a minor blip last week after the ECB failed to appease the market by announcing a renewed stimulus package.  The continued strength in equities is being built on the prospect of unconventional monetary policy initiatives and record low interest rates for many years to come.  Growth might be sluggish but when you’ve got central banks hooked like a drug addict on propping up the economy and attempting to prevent catastrophe then all of a sudden equities look like a decent bet, especially when all other assets classes don’t look much like they could return anything significant.

For US markets last night they were supported once again by some decent jobs data as the weekly jobless claims declined unexpectedly and in addition the housing was also seen to be on the mend.  These are two critical ingredients to the US economy and ones that are preventing a dive back into recession across the pond for the time being.  But on the other hand there are still significant downside risks for the US economy and a worsening picture in Europe all of which kept investors nervous especially when a former member of the ECB did not agree with the bonds buying plan, so in the end the Dow actually posted a small loss of 10 points to 13,165 snapping its four day rally.

As mentioned at the open this morning the FTSE is just retreating a little to 5840 at the time of writing.  Clients are short of the index overall and have been for a number of days now.  Such a stance is understandable really since we’ve tracked sideways all week and there’s been little in the way of anything to spur the bulls into further buying action.

Tired of waiting for the EU officials to deliver after last week’s firm promises, investors started to exit the shared currency, sending the EUR/USD pair 59 pips lower to 1.2300.  They were also encouraged by the better than expected US data regarding housing and employment and a shrinking US deficit was an extra supportive feature for the greenback.  This morning the single currency is also drifting a little to 1.2280 at the time of writing.

Amid reduced volumes, gold prices moved 4 bucks higher up to finish at $1616 but on a bigger picture remained locked within the sideways trend witnessed since early June.  It appears gold investors are unimpressed by slightly better signs on the world’s biggest economy and instead are awaiting for that “promised” quantitative easing, be it in Europe or the US.

Despite the higher than estimated drop in the US jobless benefits, the energy sector was still searching for direction as the WTI crude prices hardly changed ($93.36 closing price).  It could have been that China, the second biggest oil consumer in the world, showed lower industrial production and retail sales which increased concerns of future demand.
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Market Comment 10th Aug 2012

The economic data nowadays doesn’t come as much surprise and it’s almost as if investors expect to see disappointing figures on a regular basis.  

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