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UK stock market commentary (February 13, 2013): BOE inflation and growth forecasts a focus

The FTSE is due to dip on the open today but only really because of a large amount of dividend payouts that means the index is in the red but investors searching for yield will soon see some cash in their coffers once the dividends are actually paid on the pay date. The FTSE remains firmly above the 6300 level after its impressive bank driven run higher yesterday and last night across the pond US investors finally managed to push the Dow Jones to close above the 14,000 mark for only the second time after so many attempts. It was yet another round of better than estimated corporate results in the US that sent the Dow to its highest close since 2007. Investors’ bullish mood was also sparked by President Barack Obama in his State of the Union address which entertained the idea of reducing the budget deficit by pushing for economic growth. Particular targets for spending will be clean energy and infrastructure, yet there was little in the way of any major move towards significant spending cuts which the Republicans are pushing for and now the end of the month is looming where the sequester is due to hit.

Already early in the session the FTSE is making some ground trading higher than our original calls ahead of the open. It looks like banking stocks remain popular amongst investors as the sector reports in earnest now. Out of the banks that have reported across Europe so far this season over half look to have beaten analyst expectations and so the sector remains popular one, even if there have been some slightly mixed results.

Today the focus will be on the BOE’s Inflation Report where they give their wonderful fan charts projecting the possible course of growth and inflation. We can expect some sort of explanation for their higher growth forecasts than the one that was actually released to the market for Q4 which showed a contraction in the economy. There’s a chance that they might even reduce their forecasts in the quarters ahead which will make for grim hearing for the Chancellor. In terms of inflation, unfortunately crude and soft commodity prices simply have not been getting any lower and so petrol and food are likely to keep inflation ahead of target going forward, for just how long in the BOE’s view will be important.

French President Francois Hollande’s call for coordinated action to influence euro’s exchange rate did not impress ECB President Mario Draghi who said politicians should refrain from such comments. If anything the shared currency had a good day, rising 50 pips to 1.3449 exactly the opposite effect of the intended statement.

As North Korea conducted its third nuclear test, investors moved into safe haven assets pushing gold prices $3.1 up to $1651.1. It was a limited rebound as the overall investor sentiment is a rather optimistic one which works against the precious metals sending participants into more riskier assets.

The Organization of Petroleum Exporting Countries upgraded its forecast for oil demand by 0.3% from last month’s estimate to 29.8 million barrels. The reaction was a rally in the WTI crude prices of 62 cents to $97.54 a barrel. However, the chart shows a sideways movement for the last two weeks within $96 - $98.30 trading range.