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UK stock market commentary (October 29, 2012): Frankenstorm unsettling investors

“Frankenstorm” is on its way to batter the US East coast at an ominous time for President Obama with just over a week to go before the elections. The storms could actually work in his favour if he shows leadership in dealing with the potential damage that could be caused (any sort of leadership above and beyond what George Bush Jnr showed after hurricane Katrina devastated New Orleans) and with the economic data going his way he might just have it in the bag. Of course anything can happen over the following few days, but the recent fall in US unemployment and very surprise jump in GDP is likely to be enough to persuade those that are undecided and the floating voters that they are better off with the incumbent.

Although there are many who may not allow the wool to be pulled over their eyes and see that the GDP data was given a significant boost by government spending that grew at its fastest pace for three years. Strip this out and you are still seeing growth but at a time when interest rates have been at historical lows for years now and the Federal Reserve has been splashing the cash around like it’s going out of fashion, the data isn’t quite as good as the headline figure suggests.

A rare sight for investors this week is that this hurricane is likely to cause very low volumes today and possibly tomorrow as US stock exchanges are going to batten down their hatches with most people working from home or other locations rather than New York.

At the end of last week the Dow posted a slight recovery gaining 24 points to 13,116 as investors squared some of the previously established short position. The corporate earnings reports painted a mixed picture so the nonfarm payrolls data due this week could bring that extra bit of help for defining a clear direction. Here in the UK and Europe meanwhile we’re off to a negative start for the week with the FTSE down some 15 points to 5790 at the time of writing. The negativity of the past few days seems to have come to some degree of a halt after the index bounced off the 5750 level on Friday just as it did earlier in the month so key support and resistance levels to watch over the near term are 5750/35/15 and 5825/35/55 respectively. Over the medium term the little double top that’s formed around 5935 is s worry for the bulls and so this is quite a major resistance area for them to overcome.

A smattering of economic data today comes in the form of UK mortgage approvals and consumer credit this morning then US personal income and spending at lunchtime, so no major market movers. It was not a favourable week for the shared currency, which broke below the 1.3000 mark, closing at 1.2933 on Friday. The economic data continued to disappoint after news that jobless rate in Spain is at record highs, sparking renewed protests over the weekend. Meanwhile, Germany was also hit by a fall in business confidence casting further doubts on the European debt troubles.

Gold closed at $1711.3 on Friday having been slightly boosted after positive data in the US showed that economic growth had picked up in Q3. It climbed by around 4 bucks, well below the 11 month high of around $1795 an ounce hit in early October, the main factor being a period of increased consumer spending that offset the first cutbacks in investment in more than a year. All eyes are on the precious metals performance once the US nonfarm payroll figures are released in ten days and for now it's expected to trade steady before new data breathes life into the commodity.

Rising concerns that Hurricane Sandy could disrupt refinery production on the Eastern US kept investors nervous despite the clear bearish trend seen in the last week. In addition, gross domestic product data was a pleasant surprise, showing an advance of 2% which also brought buyers back into the energy sector. So, the WTI crude prices moved up 13 cents to $86.10 and this morning Nymex is at 85.40.