UK Market Comments

The FTSE bounce was joined by a small rise for US markets, aided by yet more M&A as Rupert Murdoch went hunting for Time Warner.

UK markets

Miners have dominated the action in London, underpinning the FTSE’s recovery from last week’s lows. Pleasant news from China and a robust update from Rio Tinto have provided the catalyst for a general outbreak of risk appetite, taking place with a backdrop of good earnings from the US. Royal Mail’s share price has been the focus in the UK, but a bigger problem could be developing in France, as the regulator there investigates Royal Mail’s subsidiaries. The use of the word ‘material’ regarding potential fines is the crucial element, and will give wary investors another reason to keep well away from Royal Mail. Real estate is in focus today and tomorrow, and Land Securities shareholders will be hoping that today’s update from British Land will put the market in a receptive mood for tomorrow’s numbers.

US markets

Janet Yellen sounded a warning shot yesterday in respect of some lofty equity valuations, yet given the action in stock markets today the words of caution have fallen largely on deaf ears. So far most of the corporate earnings have been met with investor approval so the complacent buy-on-the-dips mentality is still very much in vogue. Weak industrial production seems to be the common theme in both the US and indeed in Europe, but this has been tempered by a more optimistic housing market index print. Gains in the tech stocks are driving this market higher with Yahoo a lonely outlier, shedding 4.69%, as investors manifest their dismay following the Q2 earnings release. EBay is set to report after the bell and the stock price appears to be treading water in advance of the announcement.

Commodities

A general closing of shorts allowed gold to recover today, rising back above $1300, but this must be set in the context of the move in recent days. An improving US economy and a central bank happy to cut back on stimulus takes away much of the rationale for being in gold. Only the onset of the traditionally strong August period for gold offers hope for the bulls, so they may yet have one more brief moment in the sun.

FX

The steady progression in EUR/GBP has seen new lows again, after headline UK unemployment data reinforced the impression of a burgeoning UK economy. The reaction in GBP/USD was more muted, since wage growth is still abysmal when compared to inflation. Britons might be more gainfully employed, but the wage squeeze goes on. That, almost above all things, will be what keeps Mark Carney back from hiking rates.