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UK stock market commentary (March 04, 2013): Sequester concerns halts market rally

A bit of sequester concern is creeping into the markets for the beginning of this week and considering that they have managed to keep themselves afloat until now the downside pressure we are currently seeing doesn’t look to be anything of any major worry just yet. On Friday worries about the impact of $85 billion of spending cuts in the US were met with ongoing better than expected economic data, so the Dow was torn between bulls and bears. Consumer confidence and ISM Manufacturing PMI, both came in strong thus reversing the downside trend for the US stocks. As a result, the Dow Jones’s tussle had it finishing just on the side of the angels up 35 points to 14,089 even in the face of a slowdown for Chinese manufacturing. At the time of writing however the futures are indicating a 50 point fall for the Dow on the open but of course that’s quite a way off and could easily change ahead of this afternoon.

So this means that European indices are off colour this morning with the FTSE lower by some 30 points to 6350. For exactly a month now the FTSE has traded sideways between 6200 and 6400 in a period of consolidation following the very impressive start to the year it saw in January. This consolidation is reminiscent of last Autumn when the index traded between 5600 and 5900 before eventually breaking to the upside in December and then as we know that headed even higher. Those bulls out there are of the belief that despite the very well advertised headwinds the markets have taken them in their stride and just as we saw last Autumn, there could be continued consolidation in the weeks ahead before the next leg up.

Things are quiet on the economic data front with the UK’s construction PMI data due for release this morning but things get busier as the week goes on and we round up with the US non farm payroll on Friday.

The stalemate for the Italian politics continued with no indication of real progress which in turn put further downside pressure on the shared currency. However, on Friday there was additional bearish news as the unemployment in the euro area rose to a record 11.9% from 11.8% a month before sending the EUR/USD pair 34 pips lower to 1.3021. This morning the risk aversion is taking the single currency lower to 1.3000 where a break below could see a test of 1.2945.

As the US President Barack Obama expressed concern on the negative effect the federal spending cuts could have on employment, fear of inflation was delivered a fresh blow.

With economy getting better it was hardly a surprise to see gold slumping further, losing $4.2 to $1575.5. As was the case with other commodities, a stronger dollar did not help either. With Europe still struggling a China showing a weaker growth for its manufacturing, the crude prices tumbled on concern oil demand could suffer. A resilient US economy offered a case for a pullback but anyway the WTI crude prices ended the day 84 cents down at $90.92. A stronger greenback due to safe haven demand also worked against the bulls and their potential bargain hunting.