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Market Comment 10th July 2012

A mixed bag of news is making it difficult for investors to make up their mind as to whether equities are a good bet or not at the moment.

Chinese data is very much the focus this week as we saw inflation dip more than expected yesterday, today import numbers were way below forecasts and Friday is expected to see GDP fall below 8%.  This is a key focal point for those investors in mining and energy stocks as their long term investment plan is largely based on the sustainability of growth in the so called BRICs.  At the same time the eurozone issue rumbles on and on, with Spanish and  Italian government bond yields having worryingly spiked in recent days.

Yesterday Spain's 10 year was back above 7% and Italy's above 6% which for either country are unsustainable levels considering their bulging debt burdens.  Whilst EU finance minsters have given Spain a bit of breathing space by loosening their fiscal deficit targets the majority in the markets are still very sceptical that the agreements made at the latest EU summit are enough and that they will actually work.

Today a key vote in Germany will be closely watched as politicians there decide whether or not the decisions made at the EU summit are constitutional or not and whilst it's expected to be accepted there's always the chance of a shock which would send shockwaves through the markets.  Such a decision is crucial for the future of not only the eurozone but the whole EU project as it's a vote of confidence as to whether deeper integration will continue to
be sought.

Aside from all the macro news and events here in the UK two contrasting stories also show a very mixed picture of the consumer. Retailers Marks & Spencer and ASOS could not have reported more opposite trading updates with M & S as expected disappointing with some bad like for like sales, especially in terms of non-food which as a result has claimed the job of Kate Bostock who headed up the division.  The shares are higher on the open only because the results aren't quite as bad as the market had thought but they highlight a growing concern that the great British institution is suffering from wider underlying problems.  For the high street bellwether not to be able to benefit from the Jubilee week end where
retail sales across the country saw a big jump is a small alarm bell. Meanwhile online retailer ASOS tells a different story altogether where their UK sales alone had a good jump which is again another thorn in M & S's side as people are shopping for cloths, but just not in their stores.

The FTSE is flat to positive so far this morning as investors are probably not willing to commit ahead of the German vote today.  Given the narrow trading ranges and low volumes in recent days it's as if investors are almost shutting down for summer and Olympics just round the corner.  We may not see volumes pick up again significantly until at least September at this rate.  Trading at 5630 at the time of writing near term support and resistance is seen at 5590, 5570 and 5670, 5700, 5725 respectively.

The euro seems to have found support around the 1.2250-1.2300 area and remains hovering tentatively above its multi-year low.  At 1.2290 at the time of writing FX traders will be watching the German vote more keenly than most to just in case the unexpected happens.  Negativity towards the single currency still remains as employment, industrial and manufacturing production and retail sales within the eurozone continue to head lower and
the prospect of further rate cuts from the ECB are very real.

Gold too has suffered a bout of low volume and narrow ranges as it continues to hover around 1583.  The bulls of the precious metal seem to be waiting for the next piece of terrible data from the US to support their view that more stimulus is around the corner.

Crude is in sell off mode this morning with Brent down a buck and a half to 98.75 and all eyes will be on the inventory data later today. Selling pressure is coming from the Chinese trade data earlier that showed a big fall in imports raising concerns over demand in the world's second largest economy.

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Market Comment 10th July 2012

A mixed bag of news is making it difficult for investors to make up their mind as to whether equities are a good bet or not at the moment.

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