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UK stock market commentary (January 14, 2013): More survey point to poor Q4 GDP

As the FTSE continues its climb higher signs that the UK economy are not in such good shape are filtering through. Only a few weeks ago our own Capital Perspectives survey which polls 200 fund managers showed that optimism amongst them about our economic prospects were at their highest level since the survey was started back in 2011. Other business and retail surveys this year have also had a rather positive slant to them, but the PMI surveys have indicated otherwise. But the most recent construction and services PMI surveys fell greater than expectations, last week’s trade balance did not give much in the way of any encouraging signs for our exports, the retailers have reported so far have told us how tough this Christmas’s trading was and just today some business surveys have shown falling business confidence.

None of this will do anything to help boost confidence which is a critical ingredient when it comes to businesses and consumers loosening their belts a helping to boost the economy. The jury is still very much out as to whether Q3’s impressive rebound to 0.9% GDP was maintained into Q4 and it’s not long before we’ll get the first snapshot of Q4 GDP which is due for release on 25th January.

There is still a degree of optimism out there though and signs of gradual improvement in activity. In general forecasts have been kept around consensus for GDP of in the region of 1% in 2013 with the government’s funding for lending scheme expected to assist in boosting demand, although there are plenty of other doom mongers out there expecting anemic growth at best this year.

That optimism though is being felt more by investors, especially those across the pond, who pushed the Dow a few points higher to 13,488 as traders got more enthusiastic about corporate earnings in the US. This was the highest level since October last year as investors liked seeing that Chinese exports are regaining momentum and for now it seems the bill which averted the fiscal cliff has done its intended job with the markets now focusing on fourth quarter results.

Asian indices were pretty much green across the board although this momentum doesn’t seem to have followed through to Europe this morning. We had been calling the FTSE to open higher but it ended up opening flat and has just been drifting a little lower currently just below 6120 at the time of writing. Clients remain in their bearish mood selling around these levels, still expecting a slightly larger move to the downside.

The euro continued climb versus the dollar last Friday following comments by German Finance Minister Wolfgang Schaeuble saying the common currency has seen ‘the worst of the crisis’. Consequently the EUR/USD pair reached 1.3336 for the day, the strongest level since early April last year. Overnight the risk-on mood was still prevalent in the currency market however along with indices this morning it is a little softer at the time of writing to 1.3360.

Gold closed at $1662.5 in the previous session and this morning it is on the rise buoyed by a stronger euro. Physical buying from China is a factor for the rise too and policy makers there are rumoured to be cutting back on monetary easing measures in the future to attempt to keep inflation at bay. Expectations of monetary easing in Japan have also lent support after gold dropped by $11.5 and the greenback being at its lowest level since the beginning of the year has made dollar priced commodities more attractive for holders of other currencies.

We saw some light profit taking last Friday as the WTI crude prices dropped 19 cents to $93.63 but still ending the week on a positive note. The culprit might have been the resumption of an oil pipeline that could potentially reduce a glut in the US. The market price remains above all the short term moving averages.