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Market Comment 8th Aug 2012

The Bank of England takes centre stage today and unfortunately we can expect its quarterly inflation report and press conference to make for grim reading. 

Mervyn King will set out the detailed economic analysis and inflation projections on which the Bank’s Monetary Policy Committee bases its interest rate decisions and present an assessment of the prospects for UK inflation and GDP growth.  It’s the GDP growth part that will be focused on the most as expectations are of downgrades to their forecasts where only a few months ago they had expected growth for the whole of 2012 to be just under 1%, the likelihood is that they will revise downwards to flat lining at best.  This gloomy picture shouldn’t come as too much of a surprise following the unexpected double and triple dip recession that was confirmed in the latest GDP figures and no doubt there will be the usual comments bemoaning the situation in Europe which is admittedly worsening by the day.

Despite an economy that is not growing at the moment the labour market in the UK has actually been rather better than one would expect.  Considering the depth of the recession that followed the banking crisis in 2008 unemployment has yet to hit the big figure 3 million mark as it has in previous recessions.  Businesses have had two years now where they’ve been expecting things to pick up much more and so have been recruiting staff to a certain degree in order to take advantage of the “upturn” when it came.  A flexible labour market has also meant that it’s easier to find full or part time work if it’s there.  But the so called “upturn” has not materialised and there’s little prospect of it doing so at this moment in time, so the state of the labour market is expected to decline and unfortunately we could well see the total number of unemployed creep towards the 3 million mark over the next year.

A mildly bright piece of news from today’s report though will be the reduction in the inflation forecast, which has been dropping like a stone in the past few months, back towards their target of 2%.  All this will no doubt pave the way for more QE from the BOE as they continue to throw good money after bad.

On the open this morning the FTSE commenced the session down by some 40 points and continues to languish in the red hovering around the 5800 level.  Resistance is now seen at 5840 and 5880 meanwhile support is where the previous resistance was around 5700 to 5720.

The shared currency took a breather yesterday, closing near flat at 1.2397 as the relief rally after the US employment numbers seemed to have run its course.  Considering the manufacturing data from the eurozone it can be argued the euro’s performance has been rather resilient of late.  In Germany for that matter, factory orders declined more than estimated, indicating a slowdown in Europe’s biggest economy which is yet another piece of bad news for the single currency.

Gold edged higher to $1618.4 in intraday trading before closing near flat at $1611.1 on a late retracement in the euro.  The precious metal has attracted buying interest recently on expectations of extra quantitative easing, however investors are now waiting the central bankers to deliver, looking rather fed up by so much rhetoric and little action.

The equity market continued its advance on better than anticipated earnings which in turn provided optimism for the energy sector.  As a result, the WTI crude prices posted another positive session, climbing $1.62 to $93.67 a barrel with support also coming from hopes of additional stimulus measures.  It’s true that concerns over oil supplies disruptions from Hurricane Ernesto were another supporting feature.

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Market Comment 8th Aug 2012

The Bank of England takes centre stage today and unfortunately we can expect its quarterly inflation report and press conference to make for grim reading.

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