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UK stock market commentary (February 20, 2013): Bulls remain in control

A new intraday as well as closing high for 2013 by the FTSE 100 yesterday was impressive to say the least. It caught clients of guard though as they had been largely short the index going into yesterday’s session and gradually increased their sell positions as the day wore on so a few fingers were probably burnt on the way up. The move higher indicates that there’s life in the rally yet and that’s despite some potential up and coming political headwinds. Fresh from the golf course with Tiger Woods President Obama resumed his rhetoric around attempting to avoid what he regards as potentially catastrophic cuts to government spending due to kick in on 1st March. Both political parties refuse to budge and the Republicans are looking to force the hand of the President following the can kicking that happened over New Year. With much at stake it’s a little surprising to see the markets continuing higher which is probably the reason behind clients’ willingness to continue to maintain their bearish bias.

Yesterday the Dow Jones rejoined us and in fine form following its extended week end by rising to the highest level in more than five years yesterday, reaching 14,035 a 53 points gain for the session. Back from holiday, the US investors rushed into equities encouraged also by the good news on the European economic front. The fact that around 70% of the US companies which released their corporate results have exceeded estimates continues to offer support for stocks. But the strength in the US indices has not led to another surge higher by European indices as at the time of writing the FTSE is just in the red trading at 6375.

The economic calendar is a little more packed today and already we’ve seen French business confidence numbers come out better than expected. This compliments the consensus smashing ZEW survey from Germany yesterday and gets the session off to a good start, but there more to come throughout the day.

From the UK there’s the labour market figures due at 9.30 London time. The funny disconnect between the wider economy and the jobs market is set to continue with expectations that the claimant count will fall. Interestingly, many of the past few months has seen the claimant count fall when it was expected to rise, so there’s every chance that forecasters will be bamboozled once again and no doubt we’ll actually see a rise as opposed to the expected fall! Nevertheless the number of jobs has been remarkably strong considering the UK’s flat lining economy so it will be interesting to see if that trend continues.

At the same time there’s the BOE minutes where a vote of 8-1 on QE is expected to be reported, but the focus will be on what discussions were had in respect of inflation as from the latest BOE Inflation Report it was made clear that above target inflation is here to stay.

A much higher than expected rise in the German economic sentiment as indicated by ZEW index (48.2 compared to 35.3 forecast) undoubtedly spurred buying in the common currency. That pushed the EUR/USD pair 39 pips up to 1.3389 and the better than expected French business confidence figures have tipped the balance in favour of the single currency again this morning as EUR/USD has broken back above the 1.3400 mark to 1.3410 at the time of writing.

Gold resumed its plunge yesterday, losing $5.4 to $1603.7 largely on increasing optimism the economy is getting better and inflation not yet around the corner. However, as mentioned in the previous snapshot, the $1600.00 mark proved to be a good support (for now?) with gold rebounding slightly towards the close and also marginally up at the time of writing.