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UK stock market commentary (September 24, 2012): Silly season gets underway as politicians try to right their wrongs

The silly season of the political party conferences is underway and to kick off the junior partner in the Coalition government has stuck its neck on the line by calling for higher taxes and less spending cuts. If ever there was an attempt to try and get voters to notice them this would be it. Unfortunately, most of the support that they’ve lost in the last couple of years is unlikely to be persuaded by such a lurch to the left by the party, in particular for younger people who aspire to earn the sort of money and one day live in the sort of houses that the Lib Dems want to tax hard. By also slowing the rate of spending cuts the government will have to borrow more at a time when heavily indebted governments are being bailed out left, right and centre, because the austerity on the other side of the coin in the form of higher taxes on the rich simply won’t plug the hole. The juniors have to shout to get noticed at the moment but in the last few days it would seem that they are struggling to be heard.

Of course the effect of these conferences on the markets will be nothing as there are bigger fish to fry particularly in the eurozone, the US and China, but last week’s performance in the Dow Jones is indicative of a breather as investors tried to digest the rally seen earlier in the month. On Friday, the US index lost 20 points to take it just below 13,600 amid plenty of uncertainty going forward which triggered some light profit taking ahead of weekend. Although the US economy remains in a better shape than Europe, fresh concerns regarding Asia are not encouraging any additional long positions.

This morning a little negativity is creeping into the European indices following a poor session in Asia overnight and at the time of writing the FTSE is 10 points in the red at 5840. It would seem that the euphoria over the central bank interventions from earlier in the month has fizzled out now but so far in this session the index has done very well to recover from the very outset. We had been calling the FTSE to open lower by 50 odd points or so at 5800, but the support is still there preventing a substantial sell off for now.

There really is very little to report on the economic data front today apart from German Ifo business sentiment figures this morning. For the rest of the week things get a little more interesting with US consumer confidence tomorrow and then GDP data later.

Initially, the euro climbed against the greenback on the back of speculation that European officials were planning to come up with a bailout agreement for Spain as early as this week. However, the shared currency gave back the gains towards the close, finishing just 7 pips up at 1.2964 as participants did not want to stay exposed over the weekend, especially when a number of announcements in the recent history have been released during the weekend.

Renewed fears over paper currency devaluation as Spain seems to be in the cards for a rescue program has pushed gold prices to fresh recent highs. The yellow metal reached an intraday high of $1787 on Friday, last seen on February 29th but retraced on position squaring ahead of weekend, finishing $4.90 up at $1772.

We saw another quiet session in WTI crude trading which finished rather unchanged at $92.89 a barrel after tumbling sharply in the first half of last week. Rumours of an imminent draft to save Spain did enough to interrupt a decline in oil prices with a lack of clear direction in equities also keeping investors on the sidelines.