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Market Comment 5th July 2012

At least with the headlines focusing on the Libor issue for once we don’t have to talk about the single currency, but today the focus will be back on the eurozone as the ECB makes its interest rate decision, where the market is fully expecting a cut of the base rate by 25 basis points to 0.75%.  

One of the main things that the ECB still has managed to preserve is a slightly higher interest rate giving it some room to be able to ease monetary policy when the time came, but the fact that they will have waited this long to ease their benchmark is very much a case of the horse has bolted.  Such a move might help borrowers on the continent but will do little to ease the pain within the banking sector.  The decisions taken at last week’s EU summit may have given indices a little bit of a boost however the underlying problems still persist and there are many political hurdles that still need to be overcome with some member states reluctant to give their full support to what was agreed.  Polarisation is becoming more apparent and what was more evident than anything else was that the Merkozy days are well and truly over with relations between France and Germany becoming a little frostier.

Unfortunately, we can expect to be talking more about the euro as time goes on since it remains the dominant force behind the macro picture at the moment and the single currency itself remains a more volatile one than most.

But as US investors return to their desk with a hangover following Independence Day celebrations their markets look to be in relatively bullish mood.  The Dow is not far off testing 13000 and tech stocks are seeing some good strength.  All this when even their own economy is looking decidedly like its taking a turn for the worse, but what many investors are gambling on is the prospect of further stimulus from the Federal Reserve. What we’ve seen in the past few years is that central bankers simply can’t resist pulling the trigger when things start looking bad.  Maybe not for a few months as any move now by the Fed ahead of the elections in November could be seen as being partisan, but certainly when the new or the incumbent is voted in then, with the way the US economy is going, there’s an increasing chance that there’ll be something shortly after then.

The BOE on the other hand is set to get the printing presses going again today as the UK economy looks like it could very well remain in recession for the third quarter in a row.  Whilst it’s not as deep as the recession we saw in 2008 and 2009 it’s still a recession and things are tough for consumers and businesses.  There are doubts however that more QE today will actually boost demand enough for us to avoid negative growth in Q2.

Yesterday’s session of thin volume saw the FTSE 100 drop a mere 3 points to 5684 and this morning we’re seeing a very small move to the upside.  Trading at 5690 at the time of writing those near term resistance levels at 5715 and 5760 remain the targets for the bulls.

EUR/USD suffered a bout of risk aversion yesterday which didn’t drag equities down with it, but the prospect of a drop in the base rate today allowed the sellers to come in and push the euro 77 pips lower to 1.2526.  This morning we see the single currency a little lower again at 1.2515.

Gold prices paused for a breather yesterday as investors waited on the sideline ahead of crucially important meetings by central bankers in the UK, Europe and the US in the next two days.  It was a slight decline of $2.07 to $1614.80 with the anaemic daily range indicative of the quietness in gold trading.

Some mild profit taking after the last few days’ rally sent the WTI crude prices 69 cents down yesterday to $87.06.  Energy investors will be looking at the ECB and BOE meetings today, hoping for additional stimulus measures which in turn should kick start increased demand for oil.  Since global coordination was mentioned a few times, it could be an indication the Fed will follow suit tomorrow, but as mentioned that’s unlikely at this time.
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Market Comment 5th July 2012

At least with the headlines focusing on the Libor issue for once we don’t have to talk about the single currency, but today the focus will be back on the eurozone as the ECB makes its interest rate decision, where the market is fully expecting a cut of the base rate by 25 basis points to 0.75%.  

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