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UK stock market commentary (February 08, 2013): Do yesterday's falls present a buying opportunity?

The near term uptrend in the FTSE is being tested and in the case of some of the European indices you could argue that it’s over however this morning there’s yet another attempt by those bulls to pick up stocks that they believe have corrected too far. Yesterday’s sell off was particularly sharp in the FTSE compared to the likes of the Dax and Cac as the London market has yet to succumb to any real selling pressure as yet and was probably overdue a pull back. US markets on the other hand remain near their year’s highs despite the comments by the European Central Bank President Mario Draghi that a strong euro could make a euro area economic recovery harder to achieve which worried US stocks investors a little but not enough to cause mass selling hysteria. This sent the Dow lower by over 100 points initially but it recovered towards the end of the session and ended only 40 points in the red closing at 13,944.

Yesterday’s focus was very much on central banks and here in the UK we had a proper chance to meet our next BOE Governor who is due to take office in July. The FTSE initially got a boost from the comments he made before giving back its gains and sterling strengthened too as he made it clear he was going to make some changes in an attempt to give the BOE a wider remit and focus on not just keeping inflation intact, but boosting employment and growth, similar to the remits that other central banks across the pond undertake. What this signals is a likely increase in the part that central banks will play going forward and no doubt an escalation of the so called “currency war”.

As mentioned the bulls are looking interested again following yesterday’s fall with the FTSE up some 35 points to 6265, indicating that it’ll take a lot more selling than the little bit we’ve seen so far this week to reverse the uptrend that’s formed since the New Year.

The ECB left its benchmark interest rate unchanged at a record low of 0.75% but it was actually President Mario Draghi’s concerns over a strengthening euro that spooked the global markets. Although the jury is still out there to decide whether the common currency is fairly valued against the greenback, the next reaction was one of shoot first and ask questions later. Consequently, the euro was pushed 124 pips down to 1.3398 and so far this morning the euro is not bouncing as much as the FTSE with EUR/USD currently at 1.3405.

Gold closed at $1670.6 yesterday after a weakening euro caused it to slip. This morning it is edging up slightly on track for its second weekly rise and investors are waiting until after the New Year holiday period in China to see if it can break from the range of around $1660-1680 where it has been trading. Pre-holiday buying in China has been a factor in pushing prices up slightly and solid economic data from the world's second largest economy have made equities more attractive there along with equities in other key economies with improving prospects.

Demand for the US dollar was boosted yesterday as investing community grew concerned by the ECB questioning its currency’s recent strength. In turn that easily spilled into the energy complex sending the WTI crude prices 94 cents down to $95.86 a barrel. A slightly bigger than expected figure for the weekly jobless claims also put downside pressure on crude prices.