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UK stock market commentary (February 12, 2013): All eyes on Obama's State of Union Address later

European equity markets have been apprehensive to test their recent highs and understandably so as we near the deadline for US politicians to agree on exactly how to deal with the postponed spending cuts from the original fiscal cliff negotiations at the New Year. Despite US markets continuing to hover around their recent highs and even test them, European indices are not being hood winked into this movement as investors seem to be wary of the potential volatility that can arise from such political negotiations. Obama will be giving his State of Union address later on but way after European and even US markets have closed so we cannot really expect any market reaction until tomorrow. This is seen by most as the major risk event currently within the market place and even the Dow Jones stopped for a breather yesterday ending just in the read at 13,971 amid low trading volumes.

Markets have suffered from a lack of direction so far this week as there’s been an absence of any significant economic data and so there’s been little in the way of incentive to push for new highs. We will await to see the outcome of Obama’s speech later today which has the potential to make the rest of the month rather volatile.

So far this morning the FTSE has taken things in its stride and is just trading in the red at 6270. Clients still have yet to see the recent retracement as a major buying opportunity and on the whole there remains quite a few sellers of the index expecting the FTSE to properly catch up with the likes of the Dax and Cac which have suffered rather more in terms of selling pressure.

The economic data for this week starts to get underway with inflation figures from the UK this morning which are expected to show inflation remain above the BOE’s target of 2%. This is something we’ve all had to get used to and the recent equity market strength so far this year has also meant rising crude prices and so petrol has remained stubbornly high.

As if the European Central Bank officials became too concerned about the last week’s warnings of a strengthening euro, they now came out playing down those worries. ECB member Jens Weidman said the shared currency is not ‘seriously overvalued’ which in turn supported the EUR/USD buyers. They pushed the euro 30 pips higher to 1.3399, effectively a complete recoup from Friday’s decline.

Gold closed $19 down to $1648.1 yesterday reaching its lowest level in more than a month after technical selling and holiday thinned trade took its toll. Its safe haven sparkle even at these levels failed to attract much buying interest even in light of North Korea having conducted an underground nuclear test. Investors are now waiting for the outcome of a meeting of the G20 finance ministers and central bankers later this week that could affect the FX and commodity markets significantly, especially the euro if the euro zone's debt problems are seen to be worsening. At present even a lower US dollar has failed to spurn bargain hunting and this could be due to the recent climate of optimism regarding an improving global economy.

Bullish comments from an ECB official sent market participants out of the US dollar back into riskier assets. So with a little help from across the pond the WTI crude prices posted a rebound of $1.19 to $96.95 thus crossing back above the9 day moving averages. Going forward, WTI crude prices will probably be driven by the stock market and greenback, possibly more so than the old supply-demand equation.