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UK stock market commentary (September 26, 2012): Spanish unrest resembles Greece

Spain is slowly becoming like Greece as the riots escalating in the country are slowly but surely resembling its smaller European counterpart. That is the main trigger for the whole crisis. Another round of spending cuts are to be announced in the country’s latest budget tomorrow in order to appease the ruling elite in the EU so that they can qualify for the €100b bailout earmarked for their banks, but trouble is brewing on the streets of Madrid.

It is a little surprising to see that there hasn’t been more coverage of the unrest in Spain compared to when Greece was going through its political upheaval to implement its cuts. Throughout this eurozone saga the focus has very much been on Greece who’ve been considered as the linchpin with their card being marked to be the first to exit, and so a mere few spending cuts here and there in Spain aren’t big news until Greece is out and Spain is the next domino to fall.

But across Europe we can expect more social unrest as the austerity belt tightens. For a Prime Minister who was elected with a landslide majority it is staggering how quickly his popularity has just evaporated. Making tough decisions is no politician’s dream and in Greece and Spain, even the UK, you can see why.

Markets have got off to a negative start today following a mixed session in the US that saw a statement by the Federal Reserve of Philadelphia President Charles Plosser where he said unlimited QE3 won’t spur economic growth or bring down unemployment as much as is hoped, and this easily overturned some modest gains seen in early trading. As a result the Dow Jones came under some pressure recording a triple digit decline which took it to the mid 13400 level, and this was in the face of consumer confidence data which surprised to the upside.

So in Europe we see indices under a bit of duress with the FTSE some 50 points in the red at 5810. The recent near term trend is most definitely downwards as lower highs and lower lows get the bears sharpening their claws from a technical point of view. Near term support for the index is seen around 5805/00 and 5785 so a move below here could potentially lead to a wiping out of all the gains seen since the ECB and Fed showed their hands only a couple of weeks ago.

Economic data is very thin on the ground today with Italian retail sales this morning and then from the US new home sales and this afternoon sees the weekly oil inventories, so there might be a little excitement in the crude markets later.

Doubts within the European Central Bank’s members over the success of the bond buying program continued to push the euro down yesterday 46 pips to 1.2883. In addition, the social unrest in Spain is growing as the country is planning another round of austerity measures which adds further downside pressure on the shared currency. This morning the risk averse sentiment sees EUR/USD down only a few points to 1.2870 at the time of writing. The bears have got their eyes on support at 1.2855 and 1.2830 meanwhile resistance is seen at 1.2950/70.

After a short lived rally in the opening session, gold reversed course and headed lower, losing $3.15 for the day to $1760.40. It happened due to a stronger US dollar which is inverse correlated with the yellow metal and also indicative of the uneasiness once QE3 has been priced in. The chart definitely shows the rally losing steam.

A rebound in the US consumer confidence kept energy investors rather optimistic initially with oil prices moving higher. However, a slump in the stock market combined with a rise in the greenback has quickly turned the mood negative as the WTI crude prices slipped into the red closing the day 74 cents down at $91.37 a barrel.