Reports » UK

UK stock market commentary (September 07, 2012): Bulls carry indices even higher

Super Mario can almost lay claim to his name after announcing his plans to “do whatever it takes” to save the euro.  The measures proposed yesterday were largely expected however investors really wanted to hear it from the man themselves and there were few surprises. To some extent he will have appeased the Germans but more than anything he gave markets a significant boost as a buying frenzy ensued throughout the afternoon during and following his press conference and then into the US session where the Dow headed for the highs and stayed there for the remainder of its session.

So investors by and large seem to have got what they wanted and that’s a clear and decisive plan from the ECB.  A minor issue for them is the conditionality that comes with it and since Spain and Italy, which are the big concerns for the whole euro project, are yet to receive formal bailouts they are not seen as the main beneficiaries of these measures unless they can prove they are taking the necessary measures to tackle their deficits.

But the major question of course is whether this form of QE from the central bank will actually work.  There is debate after debate as to whether the stimulus packages implemented by the BOE and Federal Reserve have actually been a success or not.  There’s no question that without QE then the big recession would have been far deeper and more prolonged but the sums of money that have been thrown at the problem there are understandably doubts over just how much bang we’ve got for our buck.  The UK is a case in point where interest rates for the sovereign may be at historical lows, but for normal people commercial and mortgage rates continue to creep higher.  QE here has had little impact on business productivity as the economy remains gripped by a lack of confidence.  Time will tell whether the ECB measures will be enough to spur growth as it certainly isn’t any sort of quick fix to save Europe’s banks.

The bulls were certainly in charge mode yesterday and momentum also came from the US ADP private payrolls which came in far better than expectations.  Today the focus is on the monthly non farm payroll expected to show 125k new jobs added.  Not only will market participants be watching closely but American voters as we near the US Presidential elections

The FTSE has opened in pensive mood following yesterday’s bonanza.  Clients had a tough time of it yesterday as rather surprisingly considering that the markets have been trending lower in the past few days, many people were short ahead of the ECB and even sold further going into it.  Short and caught was unfortunately the order of the day for many people. The index is trading at 5784 at the time of writing with the next target for the bulls being the resistance seen around 5800, then 5845 and 5880.  To the downside support is seen at 5620 and 5580.

Unveiling an unlimited bond purchasing plan by the ECB gave investors a good enough reason to go long the euro despite plenty of unanswered questions and too few details. However, the shared currency rose 30 pips to 1.2632 with an intraday high of 1.2652 last seen in early July.  The US employment report due today will undoubtedly be the main attraction with the officials fighting desperately to reduce that lingering high jobless rate.

Investors considered that by boosting its balance sheet the European Central Bank raised the prospects of inflation down the line.  The result was a rush into gold pushing its price above the 1700 mark to an intraday high of 1713.  Even with a retracement towards the close, the yellow metal posted a gain of over 7 bucks for the day to $1700.90.

Initially, the WTI crude prices were lifted by the ECB’s unlimited bonds buying program and signs the US economic recovery is staying on course.  Nonetheless, the bigger than expected draw in crude stockpiles was rather discarded by falling oil imports due to fears of disruptions in refinery activity following Hurricane Isaac.  Consequently, the WTI prices gave back the early gains, even finishing 47 cents in the red at $95.53.