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Market Comment 11th July 2012

As the US earnings season gets underway and ahead of companies in Europe who commence shortly investors will have a chance to reflect back on a quarter that has disappointed on many a macro economic data front. 

With all the major economies slowing more than many had predicted those firms that had been gearing up to take advantage of the predicted recovery will have reined in projects and investments and will also be looking at other ways to reduce costs.  The biggest cost to firms of course are its people and whilst we’ve seen unemployment in the UK peak and even in the US it has declined in the last few months the chances of more people losing their jobs is becoming ever more possible.

Expectations for the up and coming earnings season had already been reduced and so far in the US a few disappointments have emerged which have already contributed to a couple of poor sessions for the Dow.  Yesterday’s figures from M & S also didn’t make for good reading and highlighted not only the effect that the dire weather is having on retailers but it is adding to yet another headwind that consumers are facing.

Despite the surprise jump in UK industrial production yesterday it’s unlikely that we will see the UK return to growth again in the second quarter.  Across the pond growth is slowing and the labour market stalling and whilst over there another recession may not be quite on the cards yet, it’s touch and go.  All this makes the possibility of further QE more likely as central banks become addicted to the idea that further stimulus is the solution to our economic woes and at some point they will really completely run our of fire power at which point the short termism is likely to result in an even worse and prolonged downturn in economic activity.

So tonight’s FOMC minutes will be interesting to read following their extension of Operation Twist and their willingness to let the markets know that they are keeping the door very much open in terms of more QE.  With their remit being focused on the labour market it’s clear to all that things there are not as rosy as they would like and so it’s seen as only a matter of time before they pull the trigger again and tonight might shed more light on just when that could be.

Due to the weakness in US markets overnight the FTSE is in the process of erasing yesterday’s gains and is trading at 5630 at the time of writing.  With little in the way of economic data ahead of tonight’s FOMC minutes we could see yet another dull trading session and narrow trading ranges.

The euro made a new 2 year low yesterday, touching 1.2234 against the dollar, as concerns over the reports that the ESM fund may have hit a road block in the German courts has thrown already agreed upon bailouts into doubt.  Although making back some ground since the 2 year low, little likelihood of any positive cues leaves sentiment remaining heavily bearish.  This morning however a little bit of opportunistic buyers are trying to pick the bottom with EUR/USD up a little at 1.2275.

Gold eased as a bearish outlook on equity markets and a stronger US dollar sapped appetite for the precious metal.  After touching $1,600.9 earlier in the session, gold did an about face and plummeted $34 to touch $1565.9 before recovering modestly and this morning that recovery looks to be continuing taking the yellow brink to 1578.

Crude oil prices declined over 2% as the expected supply disruptions from a strike at a Norwegian oil field didn’t materialise and sentiment surrounding the global economy looks set to deteriorate, further reducing demand.  Despite the negative trajectory, traders are likely to be on the sidelines until today’s crude oil inventories shed more light on the supply situation.

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Market Comment 11th July 2012

As the US earnings season gets underway and ahead of companies in Europe who commence shortly investors will have a chance to reflect back on a quarter that has disappointed on many a macro economic data front. 

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