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UK stock market commentary (January 31, 2013): UK not the only one suffering a dip in GDP

It’s not only UK politicians who blame the lack of growth in a particular quarter on the weather following yesterday’s US GDP data showed that not even the world’s biggest economy is immune to the odd contraction. A combination of Hurricane Sandy, the worries over the fiscal cliff and an unexpected decline in defense spending sent the economy spiraling downwards for Q4 and this brought the sellers out although not as aggressively as you might have thought considering the size of the decline in growth. It was primarily the drop in defense spending that led to the decline and so the sellers hardly pushed the panic button. Nonetheless, it has provided investors with an opportunity to take some profit especially since following the GDP data was the FOMC rate announcement where some investors had hoped a more dovish stance would be taken by the Fed, but really there were no surprises there and so the Dow simply drifted lower.

As expected the Fed kept its benchmark interest rate at record lows between 0 and 0.25% adding that it will continue to buy securities at a rate of $85 billion a month as long as unemployment is still above 6.5%. By and large, the comments were a reiteration of the current stance and as the dovish expectations were dashed as mentioned the mild selling pressure continued taking the Dow lower by 40 odd points to 19,910. This has filtered through to the European session will all major benchmarks in the red.

The FTSE 100 is only off by some 15 points at the time of writing taking it to 6310 so for now it is finding some near term support from the previous resistance level around 6300. Earlier this morning UK consumer confidence data was released and we saw a rare ray of sunshine as the figure came in higher than expectations, even if it is still deep in negative territory. The improvement matches those of other sentiment surveys which have shown a degree of optimism about 2013 after such a dire 2012, but whether that optimism is to prove short lived or not following last week’s bad GDP figure or not, we’ll have to wait and see.

The Spanish economy plunged deeper into recession with a report indicating yesterday a decline of 0.7% in GDP numbers against estimates for a 0.6% fall. However, investors paid more attention to a separate report which showed a high level of economic confidence in the euro area. That resilient optimism regardless of ongoing problems in Spain pushed the euro above the 1.35 mark, first time since 2011 and ended 73 pips up at 1.3563. Earlier this morning the single currency headed higher but the risk aversion is reining in the euro taking EUR/USD slightly lower to 1.3555.

Gold closed at $1676.0 yesterday up $13.2 bucks as corporate earnings unexpectedly shrank in the fourth quarter of 2012. This led investors to flock to the traditional safe haven and this morning it is edging upwards near its highest in a week. Signs of recovery in the eurozone and an expected weakening of the greenback as the US continues to buy bonds is also supporting the precious metal.

Despite a bigger than expected build in the US weekly crude inventories as released by the Department of Energy, the WTI moved up 45 cents to $97.76 even posting a brief trip above $98.00. The energy complex was encouraged by more of the status quo in Ben Bernanke’s speech promising to keep on buying assets to boost the economy. Reports of an Israeli attack near Syria’s border with Lebanon might have added a Middle Eastern tensions’ premium.