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UK stock market commentary (March 15, 2013): Sterling recovers but for how long?

As the markets continue to climb, sterling continues to fall although yesterday it did receive a boost from Sir Mervyn who mentioned that he thought the pound had reached a fair value following months of declines. Cable dragged itself back above the 1.5000 mark yesterday and is up again so far this morning to 1.5140 showing just how some comments from a central banker can change the fortunes of currency. We saw the same for the euro back last summer when Mario Draghi said he would do all that it would take to save the single currency and since then it has managed to recover significantly. But in the case of sterling Sir Mervyn has not gone as far as to say he’ll “do whatever it takes” to save the pound. Whilst there’s a chance that Scotland might devolve next year, they are keen to keep sterling as their currency and there’s not the same threat of a break-up of the United Kingdom as there is in the eurozone, so the pound doesn’t need “saving”, however the comments by the Governor of the BOE might not prevent the downward trend forever. Continual talk of negative interest rates means that the prospect becomes more and more of a reality much to the fear of savers and pensioners. In honesty we are and have been so close to negative interest rates that reducing them any further might not make all that much of a difference. What it does show is that the UK will be taking another step towards a Japanese style of prolonged stagnation with record low interest rates, all that would be missing is deflation, something that no economy wants to see.

Yesterday the Dow impressed again with its tenth straight gain in a row. Amid a surprise drop in the US jobless claims figures, investors took advantage of the bullish momentum pushing the Dow Jones 80 points higher to 14,540 and once again that move is rubbing off on European indices this morning. At the time of writing the FTSE has just come back from our earlier calls of a positive open and is trading flat around 6530. With triple witching today there might be a little volatility ahead of options and futures expiry and things might get a little more exciting later with the US data due over lunch and this afternoon.

The EU Summit started in Brussels yesterday where leaders were hoping to strike an agreement over the fate of next bailout candidate. At the same time the employment numbers for the euro area did not look good coming in at 0.3% drop against forecast for a decline of 0.1%. Despite that the euro rallied versus the greenback rising 45 pips to 1.3004 and this morning is a little better at 1.3030 so the 1.3000 level continues to garner great interest and a tussle between bulls and bears.

Gold moved down initially on the back of yet another good set of results for the US economy only to recover later on bargain hunting and finish $2.4 up at $1589.6. For now the $1600.00 mark remains elusive with the daily movement still pointing sideways.

As fewer Americans applied for jobless benefits last week, energy investors were encouraged to go long oil as demand for energy was seen as rising. Consequently, the WTI crude prices continued their rebound after falling below the $90.00, gaining 70 cents to $ 93.14 a barrel. The short term trend has turned positive now with the market prices crossing above the 9 and 14 day moving averages.