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Reports UK

UK stock market commentary (July 02, 2014): Is a low volume rally really a rally?

July 2, 2014, Wednesday, 09:10 GMT | 05:10 EST | 13:40 IST | 16:10 SGT
Contributed by Capital Spreads

European equities are set to open mixed as traders take stock of yesterday’s gains. The bulls certainly took charge yesterday across global equities, though whilst US traders where content to make or close in on new highs on a mixed bag of economic data, Europe’s major indices still languish some way off repeating the same feat. For all the hype surrounding the rally, volumes still linger around lacklustre levels and many traders view the moves higher as un-authentic. The issue for many is that all the volume that could legitimise the rally is being saved up for the moves on the downside.

The US manufacturing data was 55.3 last month, little changed from a 5 month high in May indicating the worlds’ biggest economy is expanding at a decent pace. At the same time, the retail sales rose 4.6% last week, the biggest weekly gain in almost 3 years, also keeping investors confident about the US economic outlook. So it was little surprise to see the Dow Jones rallying sharply gaining 123 ticks to 16,962.

The unemployment rate in the euro zone was unchanged at 11.6% showing an ongoing struggle to recover from the debt crisis. Moreover, manufacturing in the euro area slowed more than forecast last month. As a result investors thought is safe to take some profits off table after the recent rally in the common currency, pushing the EUR/USD pair 14 pips down to 1.3678.

Iraq’s premium has been gradually unwounded as crude oil exports appear uninterrupted with reports that in fact will be increased. That pushed the WTI crude prices to 3 weeks low at $105.20 a barrel, a 26 cents loss for the day. The weekly oil inventories report out later today should offer some extra clues on the next direction ahead of the nonfarm payrolls data.

Although it was largely unchanged for the day, gold price reached a 14 week high in intraday trading at $1333.1 on fresh demand for alternative assets. The recent weakness in the greenback undoubtedly sparked by the Fed, has helped the precious metal post a rebound from as low as $1240.40 at the beginning of June.