Market Comment 31st July 2012

Things couldn’t look gloomier for the UK and eurozone right now as indicated by the CBI’s poor retail sales numbers and consumer confidence that continues to show a beaten up and depressed British consumer.

With all that the government is attempting to throw at the problem to boost our economy it is falling woefully short of what’s needed to get us out of the doldrums. Not even the Diamond Jubilee has been enough to tempt us into the shops and feel much better about things following a diabolical few months of weather that has turned just about everything into a damp squib. The Gfk consumer confidence data out in the early hours of this morning has put the figure within the -29 to -31 range for seven months now and following the recent GDP data, which confirmed a triple dip recession in the UK, this is unlikely to improve things. There might be an uplift from the Olympics but don’t hold your breath as a few weeks of sporting activity is hardly the tonic required to sort out our long term economic woes!

Across on the continent things aren’t looking much better either as confidence and sentiment are being slowly eroded away by the dire state of affairs in the periphery which continue to be pressured into austerity measure after austerity measure. Despite the markets getting excited about the prospects of fresh stimulus and there being lots of action behind the scenes as treasury secretaries meet with central bank presidents and governors at the same time as political leaders saying all the right things, the trickle down to confidence and “the man on the street” won’t materialise for months to come and at least until the eurozone crisis has been properly resolved. A lot is expected of the ECB this Thursday and whilst action may not be forthcoming at this meeting investors are desperate to hear more from Mario Draghi to back up his comments from last week.

The Dow Jones edged slightly higher yesterday to 13,128 but pulled back to close at 13,073 as investors remain to some degree realistic about the prospects of more QE this week. As well as the central bank decisions tomorrow and on Thursday there’s the US non farm payrolls figure on Friday where investors are awaiting extra clues as to the health of the US economy. A bad number is likely to attract buyers back in as they’ll feel it’s yet another confirmation that action from the Fed is needed more urgently.

This morning European indices are a little lower to flat on the open as the bulls just take stock of the recent gains. Clients have been coming into sell around the 5700 level rather unsurprisingly as we’ve seen in the past the index has failed at the resistance around 5700-15 on several occasions in the past few weeks. At the time of writing the FTSE stands at 5690.

The euro lost 83 pips against the greenback to reach 1.2254 as last week’s optimism evaporated ahead of ECB’s policy meeting due to take place this Thursday. Investors were particularly worried the ECB President Mario Draghi will be unable to gather enough support from the EU officials despite the rhetoric. At the time of writing the euro is at 1.2275 against the dollar.

Gold snapped a stream of three gaining sessions retracing $1.1 to 1621.60 amid questions over the possibility of another round of quantitative easing on both sides of the Atlantic. If Europe looks more likely to ease, analysts grew divided about the US which still posted economic growth albeit at a reduced pace. So, the next few days could see gold trading turning choppy.

Ahead of a very busy schedule for this week, energy investors stayed en guard, keen to see some action from regulators before getting involved further. Yesterday’s light decline in the WTI crude prices, 36 cents to 89.78, was spurred by a stronger dollar but the overall cautious sentiment was better suggested by the tight trading range seen in the last few sessions. Maybe the FOMC meeting this Wednesday, followed by the ECB one the next day and the US employment report on Friday will offer some much needed extra clues.

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Market Comment 31st July 2012

Things couldn’t look gloomier for the UK and eurozone right now as indicated by the CBI’s poor retail sales numbers and consumer confidence that continues to show a beaten up and depressed British consumer.

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