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UK stock market commentary (September 04, 2012): Yesterday's gains reversed in early action

 On top of this Spain has been getting it in the neck today as Catalonia joins Andalucia in calls for bailout funds from the sovereign, whilst they have just had to pump another €4.5 billion into Bankia. Slowly but surely we are seeing Spain edge closer towards a full blown bailout and even their finance minister seems to be paving the way for it as he has said that any conditions tied to any aid must be made clear.

So the eurozone crisis continues to unravel hampering the prospects of higher stock prices, yet there’s still to be a significant follow through of any major sell off as expectations are continue to build for some sort of action from central banks. Here in the UK things aren’t much better with the British Retail Consortium saying that retail sales for August saw absolutely no uplift from the Olympics and in fact saw exactly the reverse effect. Retail stocks as a result are struggling somewhat today.

But the focus is really on the ECB this week where the market wants to hear what Mario Draghi has been up to rather than not attending Ben Bernanke’s get together at Jackson Hole last Friday. The market has been uninspired by his comments yesterday where he mentioned that buying short dated bonds will not be outside its mandate and clearly investors demand more.

Yesterday’s session was understandably quiet so the rally in Europe was on low volumes after the US had a day off for the Labor Day holiday. At the time of writing we are calling the Dow to open 30 points higher at 13120 so the Yanks won’t want to miss out completely on any strength in indices on this side of the pond. But as mentioned the FTSE has got off to a weak start this morning trading at 5730 at the time of writing and this today might be quiet as there’s little in the way of economic data. UK construction PMI figures are out this morning followed by US manufacturing numbers this afternoon.

Comments by European Central Bank President Mario Draghi saying he is in favour of buying government bonds on the secondary market lifted the euro 20 pips against the greenback to $1.2587 yesterday. However, investors will be watching closely ECB’s interest rate decision on Thursday for any extra clues on officials’ next course of action.

Gold prices took a breather yesterday, ending near flat at $1691.30 as the US Labor Day holiday kept investors on the sidelines. It’s worth mentioning however that intraday, the precious metal reached a fresh high at $1695.40 last seen on March 27 this year. It remains to be seen if the whole speculation about another round of stimulus will come true and push gold further up.

Amid low trading volumes, the WTI crude prices advanced 49 cents to $96.87 driven by a slight weakening in the US dollar. The market price remains close to the recent highs on signs the US economy is recovering albeit at a slow pace and ongoing hopes that 'if needed’ more quantitative easing could be on its way.