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UK stock market commentary (October 23, 2012): Has Obama done enough to secure second term?

Well if the polls from last night’s final debate are anything to go by Obama should be able to secure his second term as President of the US. A mediocre performance from his rival who kept trying to steer the debate towards the economy but couldn’t land any big blows when the focus was on foreign policy, which was an area that Mr Romney looked rather weak on. The markets are likely to welcome this result as it is more likely now that we’ll see the incumbent President remain in office thus moving any uncertainty over how the fiscal cliff will be dealt with a Republican President and Congress dominating US politics. That said there’s still a few weeks of campaigning and all to play for including one more non-farm payroll figure although that may come too late for Romney if it suddenly shows a spike in the unemployment rate.

The most important thing for the US though is the so called fiscal cliff and whoever gets into the White House will have to deal with this impending issue. Much has been made of the 1st of January when new tax hikes and spending cuts are due to take place by law unless the status quo is changed, which ultimately it really has to be as the threat of the implementation of these fiscal measures sending the US spiraling into a recession is very real.

Over in the US yesterday we had a day when the US corporate results surpassed analysts’ estimates with Apple leading the pack which interrupted Friday’s steep plunge. However, investors were also cautious for the near future wondering whether the sales growth could be maintained. So amid limited volatility, the Dow Jones ended rather unchanged around 13,345.

The recovery by US stocks later on in the session was enough to give European indices a small uplift on the open today however at the time of writing those gains have been given up by the FTSE and we are firmly in the red now as a bit of a sell off seems to be taking place. At 5855 it looks like support around 5845/25 might be tested and one could almost bet their house on those levels being checked out by traders before seeing the index attempt to take out the near term resistance which remains at 5930/55.

There’s little in the way of economic data today although the UK mortgage approvals this morning will be of interest to see just how the funding for lending scheme is helping to boost supply and demand. It’s still not easy to secure a mortgage in today’s market so we can’t expect a huge uplift, but a rise from 30.5k to 31.2k is expected.

The euro rebounded 38 pips to finish at $1.3059 yesterday after Spanish Prime Minister Mariano Rajoy extended a majority in Galicia, his home region. At the same time, despite Moody’s downgrading of five Spanish provinces, the shared currency kept its gains versus the greenback. That could indicate participants are still rather on the optimistic side shown also by the chart where the euro is close to the recent high. This morning however the risk negative sentiment that has just set in has taken EUR/USD lower to 1.3025 at the time of writing.

We saw a rally back in gold yesterday as bargain hunters came out from wherever they were hiding to push for $9.3 gain to $1728.7. It might also have been the concerns about Japan’s exports which declined 10 % that fuelled renewed fears of a slowdown in the worlds’ economy and although the US earnings remained strong overall, there were many warnings that future sales growth might struggle, sparking gold buying as a hedge against rainy days.

The WTI crude prices extended their decline to reach below the psychologically important $90.00 mark, closing 92 cents down at $89.10. The catalyst was a report that a major North American oil pipeline is to restart soon and supplies will get a boost. Meanwhile, Japan announced a gloomy 10% drop in exports which also cast doubts on the global economic recovery, another downward pressure for the energy sector.