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UK stock market commentary (October 08, 2012): Markets start week in red as political party conferences end

As the Tory annual party conference gets underway to end an eventful season the PR machine will be working hard in order to recover from some of the worst gaffs ever made in the last year. The problem for the Tories is that they are increasingly being seen as the party of the rich following the reduction of the 50p rate at the last budget, and now that the headlines are full of the news that they will not back a “mansion tax” the average voter is likely to think they are looking after their wealthy friends rather than ordinary people. The reality is that such a measurement to tax people isn’t necessarily the fairest as it would actually penalise people who may have assets that place them into a high “wealth” bracket, but may not have an income to match. Slapping up their council tax doesn’t mean you’re getting the rich to pay their fair share, in order to do this you need to look into those many loopholes that allow them to pay no tax at all. A mansion tax is by no means the best way to get highly affluent people to pay more tax and any such measure would not actually bring in meaningful amounts to help reduce the deficit. Such vote winning measures are usually only just that as they would do no good for the UK coffers but they might make the less well off feel better.

The surprise in the rate of unemployment in the US all seems but a distant memory as the usual macro economic concerns surrounding the global economy come to the fore once again. The fact that the rate of unemployment across the pond came in at the lowest since President Barack Obama came into office in 2009 has not only done his re-election prospects a world of good, but it lifted the Dow Jones 40 points higher to 13,610. The early gains however could not be sustained as the index pulled back from its highs which is partly the reason for this morning’s weakness in Europe. The up and coming third quarter earnings season which is due to start later this week will be a key focus point for investors as they assess how corporate America is surviving a lower growth economy.

The result of the pull back in the Dow late on Friday means that the markets have got off to a negative start to the week with the FTSE trading around 5820 at the time of writing, down some 50 points. The speed with which the FTSE has given back ground from the dizzy heights of around 5880 indicates once again how the bulls continue to struggle to keep momentum going. Near term support and resistance levels are seen at 5790, 5730 and 5890, 5900 respectively.

The positive numbers for the US employment sector kept investors fairly optimistic for now giving them a reason to exit the greenback and move into the euro. Although the Spanish Prime Minister Mariano Rajoy held his ground and refused to call for a bailout ahead of a meeting by euro zone Finance Ministers later today, the EUR/USD pair gained 13 pips to 1.3029. This morning the negativity in equities is rubbing off on the single currency as it is back below 1.3000 this morning at 1.2970.

After signs of improvement in the US jobs market, investors started to unwind those long gold positions placed on a safe haven basis. It happened in the face of a slightly lower greenback which usually is an incentive to buy the precious metal. We saw a 10 buck retracement to 1780 which seems to continue at the time of writing with the yellow brick trading at 1769.

Despite what was perceived as a positive reading in the US nonfarm data, crude prices remained under pressure losing $1.63 to $89.88 last Friday. The perception is that supplies are still plentiful and refinery problems are poised to affect demand for oil in the short term with a shortage expected rather in gasoline market. Could widespread tensions in the Middle East change the bearish mood or energy investors are slowly growing immune?