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UK stock market commentary (February 15, 2013): Taxes all round will not help recovery

Europe is doing its utmost to make itself more uncompetitive just at a time when it needs to be doing the exact reverse. By pushing the transaction tax across the globe they are in serious danger of making investing, trading and financial transacting more expensive. This will have ramifications across the whole financial markets and guess who’s going to have to pay, you’re right! You and I. The cost of investing will spiral and pensioners will also suffer as fund managers will pass on the cost to individual investors for having to pay layer after layer of the tax as they construct their investment portfolios that are meant to benefit us in our retirement. Any such tax will be destructive just as Sweden found out when they introduced one and it didn’t take them long to retract it. Unfortunately, despite the UK’s protestations it looks like the political will in Europe is really behind this one and it is becoming increasingly more likely to be implemented.

Speaking of taxes another attempt at appealing to voters the opposition has thrown their weight behind a possible mansion tax on the “rich”. There aren’t all that many houses in the UK over £2 million, but a lot of them are probably lived in by people in their retirement who’ve worked hard all their lives. If this is taxing aspiration then I don’t know what is. Many others will also probably have a large mortgage on their property, so whilst their house might be worth £2 million or more, their actual equity in it would be far less and for them any mansion tax would be crippling. It’s time there was less tax for everyone rather than more.

Enough ranting about tax and onto the markets. Yesterday US indices started deep in the red but recovered from their lows as the US Labour Department indicated the jobless claims figures declined more than anticipated to 341,000 which kept investors optimistic about the employment sector. However, the Dow was unable to claw itself into the black as Europe painted a gloomy outlook regarding the economies of its member nations with Germany, France and Italy all showing a drop in GDP. This meant the Dow Jones ended just shy of 14,000 once again at 13,975.

This morning the FTSE is just in the red as investors continue to contemplate the recent strength in equities so far this year. Many are sitting on their hands ahead of the G20 summit that gets underway today. Clients remain overall bearish of the FTSE and in particular the US indices as they remain around their highs.

The recession in the euro zone looked to be deepening yesterday as Germany and France both reported shrinking GDP which in turn fuelled speculation for more intervention from the ECB. Understandably, the euro tumbled against the US dollar, losing 87 pips to 1.3358 with investors starting to price in extra quantitative easing. Further weakness looks to be setting in this morning as well with EUR/USD trading at 1.3325.

Gold closed at $1632.8 yesterday, dropping by $8.4 bucks and adding to its woes as the worst performing metal this year so far. An improving US and Chinese economy curbed demand for the precious metal as a traditional safe haven and overshadowed any concerns in Europe regarding Germany and France's lower GDP figures. Investors are very well aware they can get better returns elsewhere in light of persistently improving global economy figures and this is denying gold to the extent that hedge funds have cut bets on higher prices by 56% since October according to government data. All eyes are now on the outcome of the G20 meeting and its impact on currency markets to gain fresh trading cues.

After some promising signs it appears the United Nations nuclear inspectors failed to find consensus with Iran which raised fresh concerns about peace in the Middle East. At the same time, the numbers for unemployment benefits in the US were better than expected which confirmed the sector is on the right path. Consequently, the WTI crude prices moved up 18 cents to $97.31.