Reports » UK

UK stock market commentary (March 13, 2013): Another sell off, another buying opportunity?

The news flow has been very slow this week and usually when there’s an absence of any major economic data releases or geopolitical events you will understandably tend to see equity markets drift, but drift in the direction of the trend and this is largely what we’ve seen in the past few days. However, this morning the bulls are taking a breather as the glut in the news flow continues and as a result the FTSE has retreated from the 6500 level on the open down some 30 points to 6480. Those clients who’ve been heavily selling the index will be glad to see this morning’s weakness but the larger question is whether this is the beginning of a wider and more prolonged correction to the downside. This question we’ve asked ourselves each and every time there’s been a sell off so far this year and as yet there has been no materialisation of any major move to the downside. The main reason of course is that investors remain content that central banks are acting as a backstop to the world’s major economies by continuing to flood the system with fresh cash. As long as the unemployment rate in the US remains above 6.5% and the rate of inflation in Japan remains below 2% those central banks are going to keep the money printing presses firmly on.

We saw US stocks demonstrate this once again last night as the Dow eked out a gain of a couple of points to end up at 14.450. As long as the Fed’s accommodative monetary policy remains in place it seems investors in US stocks are still confident enough to push the Dow Jones higher marking its eighth straight gain and touching a new record high at 14.478 in the process.

With the FTSE having already made double digit percentage gains so far this year and the index being just over 6% away from its all time high there’s naturally going to be some profit taking but the overall uptrend looks to remain intact from a technical point of view. To test this the index has to break back below support seen at 6400, 6250 and possibly even 6000 but for now the 6000s look like they are here to stay.

The euro closed marginally lower against the dollar yesterday, 13 pips at 1.3032 amid signs that manufacturing in the common area is falling behind the one in US. The market participants decided to wait on the sidelines awaiting the summit in Brussels on March 14-15 where EU leaders will discuss plans to rescue Cyprus. It could be a fresh indication on the direction of the bailout policy.

With Europe and Asia trailing the US in terms of economic data, speculation the central banks are still focused on stimulus appears to give gold a lifeline. Yesterday, the precious metal recovered $11.2 to $1592.2 although it’s not yet clear if that is just a stop in the recent dive or the beginning of a more meaningful rebound.

The WTI crude prices extended their recent gains on the back of heightened expectations the oil stockpiles are on the decline. It’s true the bulls were tempted to ride the upward momentum once the market price moved above the short term moving averages. So we saw a rise of 66 cents to $92.58 for the fourth time in a row. We also feel the reaction to the weekly inventories report due to be released later by the Department of Energy could accentuate the advance or conversely bring renewed plunge in prices.