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Market Comment 9th Aug 2012

Markets continue to march higher even though the macro picture continues to look increasingly difficult both in the UK and on the continent.  

Despite downgrading forecasts for growth as had been expected in his quarterly inflation report yesterday Mervyn King’s language was a little more optimistic about how the economy was positioned to take advantage of any uptick in economic activity.  But therein lies the problem as it’s the uptick that’s causing everyone the headache especially when our biggest trading partners are in the doldrums as well.  Basically there isn’t any prospect of much better growth ahead as austerity reigns, few stimulus measures are working and the banking sector remains locked up.

On the continent our French neighbours who have just voted in a new President on a wave of hope for change and growth are on course to suffer their own double dip recession and that’s an economy that has barely touched its public sector.  Here in the UK, as mentioned many times before, with a baking sector that remains on life support and a private sector that continues to prioritise paying down debt as opposed to going out and investing we could see flat lining growth for some time to come.  But we can’t continue to blame the banks for the lack of lending there is now.  There’s no problem in blaming them for the crisis of 2008 and the subsequent travails we are seeing today but when you are being asked to restore your balance sheet on one hand and lend like mad on the other, at a time when the risks of lending are huge, plus on top of this you have exposure to toxic debt that could potentially be completely wiped out you find the economy between a rock and a hard place.

Last night’s US session initially saw the Dow slump following comments by a Federal Reserve member saying the level of monetary stimulus already in place is enough, and implying any extra measures might fail to have an effect.  But that was discarded by yet another day when the US corporate earnings surprised to the upside allowing the Dow to reverse initial losses and post its fourth session of gains in a row adding some 20 points to 13,175.  This has given European indices a bit of a boost this morning with the FTSE trading at 5850, only just in the black at the time of writing.

Today and for the rest of the week in fact things are going to be quiet on the economic data front with just the US weekly initial jobless claims and some trade balance data from the UK and US to focus on.

As Spain and Italy’s borrowing costs remain elevated and there’s no end in sight for the battle to reduce debt, investors seem to grow increasingly nervous about the euro’s future. It’s true the signs of sluggishness in the global economic growth do not help either.  As a result, it’s little surprise the euro was under pressure again yesterday, losing 34 pips overall to 1.2362.  This morning the focus has been on Chinese industrial production and retail sales figures which have been released just below expectations, so as yet haven’t caused a mad rush of selling.

Just like in the previous session gold investors refused to commit too much and rather waited on the sidelines for further developments.  The precious metal has undoubtedly lost some of its appeal lately as the sideways trend around the 1600 mark is still on.  It closed at 1611.7 yesterday and this morning is at 1615.

The US Energy Department released its weekly crude inventories numbers, showing a bigger than expected draw of 3.7 million barrels against estimates for a decline of just 0.5 million barrels.  In the face of that bullish report, the WTI crude prices finished near flat at $93.41.  It could be that energy investors took some profits off table after the last few days’ rally.

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Market Comment 9th Aug 2012

Markets continue to march higher even though the macro picture continues to look increasingly difficult both in the UK and on the continent

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