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UK stock market commentary (January 29, 2013): FTSE 100 carries on regardless

Despite the UK’s finances continuing to deteriorate the FTSE 100 carries on regardless and even though it was unable to conquer the 6300 level by closing above it yesterday, it is currently trading above it on the open of today’s session. The rally thus far in 2013 has taken even the most bullish people by surprise as it has seen the FTSE soar into the stratosphere against considerable headwinds.

The UK’s Q4 GDP data release last Friday confirmed that the economy is flat lining and isn’t exactly being assisted much by the current Coalition. For all their efforts in reducing our mounting debt pile and deficit we’ve actually seen both taxes increase and government spending rise. When you implement austerity to reduce your debts you are actually supposed to reduce government spending, not see it increase. The rebalancing of the economy simply hasn’t gone far enough. Considering all the economic difficulties and continued credit squeeze, the private sector is doing its bit to create jobs and take up a lot of the slack, but if the government was more radical in implementing growth measures to make it easier and cheaper to employ people then we wouldn’t have to see such crippling tax hikes and deeper spending cuts could be made to help balance the books. Throughout the previous government the state simply grew far too large and you only have to look at the waste that comes out of much of it with inane decision-making and a great deal of time wasting. With the debt pile rising and the economy continuing to show little indication that it is about to growth significantly, the UK can kiss goodbye to its triple A credit rating. Unfortunately, whilst a brand spanking new high-speed railway might be a good idea there’s going to be no short term benefit for the UK.

Onto the markets now and we saw another intraday high record for yesterday’s trading session in the Dow as investors lifted it to the highest level since 2008 at 13,915. However, conflicting economic results in the US dented the newly found optimism and a push towards the 14,000 mark remains elusive for now. On one hand durable goods orders rose but on the other an unexpected drop in pending home sales raised the alarm about the housing sector.

This has led to a flat but positive start for European indices this morning with the FTSE leading the way as it sits comfortably around the 6300 level. Clients continue to sell into the strength, lengthening their stops awaiting the correction that never seems to come. For the bulls the next resistance targets are seen around 6330/50/75. To the downside support is seen at 6260 and 6235.

The euro area’s unemployment will be high on the agenda this week as it is expected to move up to 11.9% for the fifth month, a record since the beginning of the common project. It’s too early to say if it will limit the bullish momentum for the shared currency but yesterday the EUR/USD pair stopped for a breather closing 11 pips down at 1.3453.

Gold closed at $1654.1 yesterday after a slight decline of just under five bucks. Today it appears to be edging up as bargain hunters are picking up the precious metal while it's at its lowest level for more than two weeks. However, investors are still exercising caution ahead of a Fed meeting later today that will discuss monetary policy in the world's largest economy. At this point signs of recovery in the US are strong so investors are being tempted by riskier assets, such as equities, to add to their portfolio.

For the energy complex, a higher than estimated climb for durable goods orders in the US had the upper hand in overturning a slip after disappointing numbers for pending home sales. As a result, the WTI crude prices moved up 53 cents to $96.52. At the same time, the announcement that a New Jersey refinery will be shut helped crude products.