UK Market Comments

Equity indices have performed yet another hand brake turn this afternoon, bouncing back after a dismal performance last week and aided by good news from Citigroup.

UK markets

And so another stock market dip appears to have been consigned to the dustbin of history. On Bastille Day traders across the globe have displayed a little of the ardour that so animated those that stormed the infamous prison, while banishing any thoughts of beleaguered Portuguese banks to the back of their mind. Shire’s coy dalliance with AbbVie has resulted in the UK firm agreeing to a takeover, and it seems that all concerned are quite contented with the outcome. The negotiations, conducted without the interference of politicians intent on making a name in defence of British industry, have been a model of what M&A should be. In the world of smallcaps, Quindell has come out fighting with an early update designed to appease even the most sceptical – an aim that seems to have been amply fulfilled following the 37% gain today.

US markets

The AbbVie deal with Shire and strong results from Citigroup have acted as the default reason for the market rally, but in reality there was never much danger of a sell-off in US markets last week. Distance from Portugal and a willingness to wait until earnings season began in earnest saw to it that yet again no dip was too small to be bought. The ‘S&P 500 @ 2000’ banners have been dusted off, barely a week after they were put away. Citigroup’s fine was swiftly ignored when quarterly figures came in ahead of expectations, with worries soothed by the smaller-than-expected size of the punishment. If earnings continue to follow the lead set by Alcoa and Citigroup then the overall outlook seems much brighter.

Commodities

Gold has demonstrated its ability to confound the unwary, diving sharply towards $1300 today as reasons to cling on to the metal evaporated amid the risk-appetite revival. Crucially however, the rally of last week may have been doomed from the start as traders swung to extreme bullishness. With so much money behind this move higher the slump today may mark a general capitulation and another retest of $1280. It seems all the effort to get gold to $1340 was for nought. Brent prices have stabilised above $107 today, but the drop back in the afternoon signals that there are still those willing to slap down any bullish traders. Any close below $107 leaves us looking nervously at $105.60.

FX

Mario Draghi becomes the latest central banker to appear before politicians, and like Janet Yellen and Mark Carney he will seek to be as pleasingly informative as possible while simultaneously keeping his cards very close to his chest. With Ms Yellen also testifying this week an unexpected calm has descended in EUR/USD. The pound shed ground versus the dollar, but this trimming of longs will be short-lived if CPI figures from the UK tomorrow come in ahead of expectations. With unemployment figures due on Wednesday it looks to be a busy week all round for GBP/USD.