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UK stock market commentary (January 23, 2013): UK's future with EU to be set out

January 23, 2013, Wednesday, 09:25 GMT | 05:25 EST | 14:55 IST | 17:25 SGT
Contributed by Capital Spreads

All eyes will be on Our Dave today as he makes his keynote speech on Europe this morning whilst at the same time the annual World Economic Forum in Davos gets into full swing. The pressure from not only his own political party but also the threat that UKIP now poses to the Conservatives has put Our Dave into this position to set out the what sort of referendum he’ll give UK voters on the EU issue if he wins an outright majority at the next election. The front page of every newspaper covers this important speech and it looks like in only a week since it was postponed when he was due to deliver it in Amsterdam, the expectation is that he will offer a whole in out vote as opposed to just a referendum on repatriating powers.

Importantly, this speech will set the bar when it comes to the EU and with the Europe issue having become such a dominance in the past few years, it will now force the other main political parties to set out their position. The major risk of course is that he is playing with an exceptionally important relationship that has served us very well by opening up a common market with our biggest trading partners and by weakening our position within the EU we’ll have less of a say that in how the future of Europe is shaped. The wave of Euro-scepticism that has built up in the past few years puts the no vote camp in rather a strong position at the moment and that’s unlikely to change much if the euro crisis escalates. But if it proves a vote winner then it’s unlikely that any of this will matter too much for the Conservatives anyway if it wins them the majority in 2015.

Last night the Dow edged higher on the back of another bout of strong corporate earnings which sent the US index to a fresh recent high of 13,712, a 60 point gain for the day. The Bank of Japan has come out and announced its open ended asset purchasing program thus joining the Federal Reserve in its approach to force its way out of the recession. The action from Central Banks continues to drive equity markets higher and this morning the strength of US and Asian markets is giving the FTSE a boost taking it some 20 points higher to 6200. Clients continue to sell into this strength yet the retracement or correction to the downside it still yet to come.

The euro moved up in early trading yesterday only to give up its gains later on finishing near flat at 1.3317. It’s true that ZEW economic sentiment in Germany surprised to the upside but perhaps investors were focused more on the euro area finance ministers meeting in Brussels. The EU officials welcomed progress in Greece, Spain and Portugal but the debate on future bailout mechanism is just beginning.

Demand for gold as a value preserver has increased once Japan raised its inflation target to 2% and also threw caution out of the window regarding its already massive debt by restarting the printing press. As such the precious metal moved up $2.2 to $1691.4 and if anything that could be considered a surprisingly light gain.

The global economic outlook has improved lately once the US has averted the fiscal cliff, Japan joined the stimulus ranks and German investors confidence climbing steeply in the latest figures. So it was somewhat expected to see the WTI crude prices posting a rally (85 cents to $96.67), on hopes of better days ahead for the world’s economic growth.