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UK stock market commentary (October 17, 2012): Obama fights back

Well it looks like Obama found his voice last night and the race to the White House is heating up. It couldn’t be a closer race, probably neck and neck as things stand but there’s a feeling that the Romney momentum maybe enough to drag him over the line with his nose in front. It is still too early to be sure and next week will see the final debate on foreign policy which for Americans is an important issue as it will allow those undecided thus far to choose who they wish to be their commander-in-chief.

For the markets however it is still unclear just what a Romney victory would mean for the US economy. At least with Obama you know what you are going to get, more of the same so for the swing voters it’s a bit of a leap of faith if they are to go down the Republican route. The greatest threat he poses is swingeing cuts to government spending that would tip the world’s biggest economy back into recession and such uncertainty might see a negative reaction from the financial markets if Romney does manage to get to the line first.

Yesterday’s trading session in the US saw the Dow put on another triple digit gain on the back of stronger than expected US industrial production figures which spurred continued buying in the stock market. Additionally, a string of corporate earnings surpassed estimates and also contributed to the rally taking the Dow to back above the 13,500 level to settle at 13,551. It is the third straight gain which takes the market price above the short term moving averages with the long term trend still on the upward path.

This side of the Atlantic is seeing the bullish sentiment ripple through indices or at least for now it is keeping them well supported following some impressive gains in recent days. At the time of writing the FTSE is flat to positive at 5875 and clients will be hoping that the recent strength will be coming to an end since they’ve been on the wrong side of the move for the duration of this rally. Near term support and resistance is seen at 5850/35/5765 and 5905/30/50 respectively and for now the bulls look to be in control. Sentiment is being assisted by the prospect of improving conditions in the eurozone with Spanish borrowing costs remaining capped and ongoing negotiations in Greece seemingly going well.

Today the focus is very much on UK unemployment figures which have been consistently surprising economists and temporary hiring during the Olympics will have certainly helped but claimant counts are likely to have risen in September as the outlook for jobs and growth remains distinctly challenging.

The euro climbed 105 pips against the US dollar to reach above the 1.3000 mark following renewed speculation that Spain is getting closer to asking for a bailout. Meanwhile, Moody’s Investors Service came to the eurozone’s rescue by confirming Spain’s credit rating, citing ‘a reduction in the risk of losing access to markets’. This morning EUR/USD is knocking on its recent highs as well trading at 1.3100 at the time of writing.

Gold posted a 10 buck rebound yesterday closing at $1749 on rumours that Spain is about to ask for financial help which could reduce some of the region’s debt concerns. The signal for that move was a shift in Germany’s tone towards rescue funds for the Iberian nation. As expected, investors rushed for gold to preserve their assets.

Fresh news that Germany is easing its hard stance on a potential Spanish bailout was the trigger for a risk on day with the energy market being one of the benefiters. As usual, a higher equity market coupled with a weakening greenback attracted buyers who pushed the WTI crude prices 21 cents up to $92.40. The rise was slightly less than those seen in other commodities possibly because participants were on guard ahead of the weekly US inventories report due later today.