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Market Comment 6th June 2012

The UK returns from an extended week end to mark the Queen’s diamond Jubilee where almost the entire population of our small island seemed to be fully immersing themselves in the celebrations.

Unfortunately, little has changed and it’s back to reality with a bang as the usual eurozone crisis issues continue to rumble on. Investors are now very much pinning their hopes on more stimulus from central banks whose up and coming meetings will be very much in focus. As mentioned the ECB meets tomorrow along with the BOE and there are growing calls for the ECB to cut rates from 1%. Across the pond the FOMC meeting later this month is seen as major event in that it’s probably the last one ahead of the election that they can do some more stimulus without appearing partisan.

The problem is that we already know this isn’t the solution. We’ve seen large amounts of stimulus over the past few years and whilst it’s all given a short term boost to growth, it hasn’t been able to resolve all the wider problems of over indebtedness. Bottom line it isn’t working and something more comprehensive is required as opposed to all the sticky plasters. Whilst British investors have been enjoying one extra bank holiday the thorny issue of Spain’s banks has continued to give European policy makers a headache. In the current environment Spain will simply not be able to tap into the bond markets in order get the funds needed to prop up their banks and so a direct injection of capital from Europe will be needed and this is what they are desperately crying out for.

Whilst the FTSE was closed a tight ranged Dow Jones posted a slight recovery yesterday, 26.87 to 12,101.08 largely on the back of an increase in the non-manufacturing business index. It is possible that investors avoided opening new positions ahead of the ECB interest rate meeting, due to take place tomorrow. The European sovereign debt crisis is seen as the biggest downside risk for US economic growth so President Obama keeps reminding his voters in his bid to get re-elected in November. The terrible NFP figure last Friday sent markets into a tailspin and so the incumbent will be trying to pin the sudden about turn that the US economy is taking on all the problems on the old continent.

All this talk of further central bank intervention has got the FTSE excited and so we return from the four day week end in a bullish mood. Up some 50 points back above 5300 some of the gains are catching up but some are also because of the big sell off we’ve seen in the past few weeks. The nearest resistance at the moment is 5350 so a move above here could see a test of 5400, meanwhile to the downside 5200 remains the major near term support.

The euro lost 42 pips against the dollar to 1.2450 which could be seen as not bad considering yesterday’s negative news. First of all, the retail sales and the factory orders were a lot worse than expected. A Spanish official admitting his government effectively lost access to capital markets did not help either. Tomorrow, all eyes will be on the ECB meeting and Press Conference with some even anticipating a rate cut.

In reaction to the better than estimated rise in the ISM non-manufacturing PMI, energy investors pushed WTI crude prices marginally higher, 20 cents to $84.29. However, the trading range was very tight as the disappointing US employment data released last week invites to a cautious approach. The weekly inventories statistics and the ECB meeting are likely to be the top drivers for energy sector today.

Mirroring a quiet trading session in the Dow and crude oil, gold finished $1.37 down at $1616.90 as market participants were by and large on stand-by. Renewed speculation that more quantitative easing is on its way spurred gold buying last Friday and if that turns out to be the case than gold could regain its appeal once more. Already we’re seeing the price head higher with the yellow brick trading at 1635 at the time of writing.

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Market Comment 6th June 2012

The UK returns from an extended week end to mark the Queen’s diamond Jubilee where almost the entire population of our small island seemed to be fully immersing themselves in the celebrations.

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