UK Market Comments

Ahead of fresh earnings from the US, markets remain cautious thanks to the ongoing slow development of events relating to Ukraine.

UK markets

Until big name earnings arrive to provide a fresh distraction, the dominant theme remains the situation in Ukraine and, to a lesser extent, Gaza. Conflicts such as these provide just the kind of uncertainty that markets detest, so what investors are looking for now are some strong earnings beats from the companies concerned. Investors can be quite keen on change when they think the man at the top has it wrong. This explains why Tesco is motoring higher today, while Morrisons and Sainsbury’s languish near the bottom. However, you can’t change bosses every day, and the new man is going to have only a short honeymoon period before he is expected to deliver.

US markets

US markets have opened firmly in the red, but even then the Dow Jones is still up for the month (if only just), while the S&P 500 is down around 0.4%. By contrast, the FTSE 100 is down 1% and the DAX has lost 3%, neatly underlining the point that resilience at the moment is to be found in US indices. US tobacco stocks have suffered in a similar fashion to the UK’s this morning, as investors react to news of the fine for Reynolds American. An appeal is likely, as is a scaling back of the final amount, but the news means that yet another sector of the market is going to be subjected to the slow grind of ongoing legal cases. As bank investors have discovered, the costs of litigation only ever seem to go in one direction.

Commodities

Despite the increase in geopolitical risk, there has yet been little rush to move into precious metals, normally a standard reaction at such times. Gold’s drop back below $1320 on Friday shifts the default view more towards the downside. The drop back from last week’s highs continues, even if the bounce off the June lows is intact. Signs of a fresh crisis could bolster the metal’s appeal, but on the basis of price action so far it doesn’t look like fear is driving this market. Geopolitics is as yet having only a small effect on oil, as Ukraine and Gaza push Iraq off the front pages. Brent crude is stabilising north of the key $105 level for the time being, but the absence of supply disruptions leaves this market floundering without a real upward catalyst.

FX

FX markets remained quiet today with a lack of macro catalysts keeping traders on the sidelines. All moves in GBP/USD are being made with one eye on the Bank of England minutes on Wednesday, with the BoE still believed to be the bank that will move first when compared to the Federal Reserve and European Central Bank, and this is still the key element underpinning the move higher. A surprise on the BoE minutes, perhaps with several members voting for higher rates, would certainly energise GBP/USD. However, even without this, a test of $1.72 is still the most likely eventuality within the next few weeks.