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UK stock market commentary (October 11, 2012): Nerves set in as Dow records 2nd triple digit decline in a row

The bad news of recent days is really starting to take its toll on equity investors who are struggling to find the light through the trees. Bad news after bad news this morning as Spain suffers from yet another downgrade to its credit rating which is sending the yield on its 10 year government bond higher. Sentiment has been gradually eroded away in recent days as Spain’s yield has crept higher bit by bit and is knocking back on the door of 6% this morning.

Across the pond US indices took another hammering as the Dow declined for the third consecutive day and a second triple digit fall losing well over a century of points to take it to the 13,350 area, as not only fears of over the eurozone persist but the Chinese slowdown is coming back into play. This was echoed by some disappointing forecasts from aluminium producer Alcoa, the so called bellwether, and Chevron also announced a ‘substantial’ fall in profits compared with the previous quarter, getting the third quarter US earnings season off to a shaky start. There was then another kick for investors whilst they were down as the Fed’s Beige Book showed consumer spending barely improving. What’s worrying for US investors is that such a nervous start to the earnings season is often followed by more of the same, and since US markets have been almost defying gravity of late many are calling for an even great correction to the downside than what we’ve already seen.

With austerity still being imposed on most of Europe and the US not even having begun any sort of spending cuts it’s little wonder that the IMF has been calling for the measures to be reined in. Growth is going to be very hard to come by as all economies are suffering the same fate.

Despite the doom and gloom in the headlines the FTSE is in a remarkably perky mood this morning as the bulls attempt to reinvigorate some sort of upward momentum. The index is 10 points higher at 5785 so hardly storming ahead, but we had been calling it a lot lower at the open and we did commence the session in negative territory. With little in the way of any major economic data announcements today trading could be thin once again and another narrow session could be the order of the day. Near term support and resistance for the index is seen at 5760/45/25 and 5820/35 respectively.

The euro tumbled sharply towards the close on the back of an announcement that Standard & Poor cut Spain’s rating from BBB+ to BBB- , 2 notches above junk status and as mentioned the country’s bond yield creeping higher is keeping a cap on any gains. Despite losing 30 pips for the session to 1.2851 investors seemed a bit reluctant to take big short positions as long as a Spanish request for bailout is still in the cards. This morning EUR/USD is at 1.2870 hovering around or just above its recent lows and key support and resistance is seen at 1.2820/00 and 1.2935/60 respectively.

For the fourth day in a row gold has fallen by over a percent, closing at $1761.9 amid eurozone worries that are making the greenback strong. Even though gold has lost some of its sparkle this week, its interest as a long-term safe remains intact as many investors are confident it will continue to perform in the face of short-term eurozone problems. Though this morning the yellow brick is attracting a few buyers lifting it to 1768.

Early in the session yesterday, the Organization of Petroleum Exporting Countries said oil supplies are at a comfortable level and cut the demand growth by 100,000 barrels also mentioning uncertainties going forward. That convinced energy investors it was time to sell and the WTI crude prices finished $1.01 down at $91.25. The weekly stockpiles report will be released later today due to the Columbus Day holiday on Monday.