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UK stock market commentary (January 30, 2013): Will this rally end?

The rally for risk assets continues and investors seem to almost be positioning themselves for a situation now where if things on the global economic front really do improve, then we could see even further strength to the upside. The worse than expected US consumer confidence data yesterday would hardly back this up considering how poor it was, however any bad data could also be taken as a cue for investors to remain bullish of risk assets because central banks will have to continue their ultra easy monetary policy. Either way, for many investors it seems like a win-win scenario right now.

In the eurozone even talk of being more relaxed towards those members that are having to impose strict austerity is not ruffling the feathers of investors, who seem to be becoming more accepting of a possible slow down in balancing their books. Bond yields for the worrisome countries such as Spain and Italy have remained low as the overall sentiment towards the eurozone really has improved and there’s a belief that a breakup can be avoided since the political will power is there. Just this morning worse than expected Spanish GDP data is also proving to have little sway in really forcing the markets lower even if at the open indices are off our pre-open calls and the euro has just retreated from its highs but remains above 1.3500 at the time of writing.

Yesterday US stock markets were driven higher by yet another round of better than anticipated corporate results lead by Pfizer and Valero Energy as investors shrugged off those consumer confidence figures. Consequently, the Dow Jones came within reaching distance of the 14,000 mark, finishing some 70 points up at around 13,950. Today, all the eyes will be on the Federal Open Market Committee meeting where Chairman Ben Bernanke’s speech could bring a few hints on his next move.

Despite the strength from US indices our FTSE quote never really got much higher than where the index closed last night at 6340 and this morning is just drifting a little lower down 10 points to 6330 following those Spanish GDP figures. Clients have remained bearish and continue to sell into the strength holding onto what has now become rather a long term view that things must come off the boil at some point soon.

There’s a lot to focus on from an economic data standpoint today with UK mortgage approvals this morning, EU confidence shortly after and then from the US there’s the monthly ADP private payroll data and first reading of Q4 GDP. As if that wasn’t enough as mentioned there’s the FOMC meeting later this evening too.

The optimism regarding the US economy spilled over this side of the Atlantic with investors leaving the safety of the greenback going for what’s perceived as riskier currencies instead. As a result the euro climbed 36 pips to 1.3490, keeping the uptrend intact and has got itself above 1.3500 where it has remained even following the slightly worse than expected Spanish GDP numbers this morning.

As we approached the support around the $1640.00 level bargain hunters came back into the gold market so yesterday we saw a rebound of $8.8 to $1663.1. Reports that central banks from Russia and Kazakhstan increased their gold holdings recently also signalled that buying on the dips is still considered by big players.

Although in line with the estimates, the Case-Schiller property index painted a positive picture on the US housing sector which in turn supported demand for crude oil. That renewed optimism pushed the WTI prices 86 cents higher to $97.30 - a four months record. Geopolitical reasons with Egypt engulfed in social unrest once more was another bullish feature.