UK Market Comments

Equity markets are enduring another wobble in the UK and Europe, but in the US the selling already seems to be subsiding as economic data holds steady.

UK markets

Indices in the UK and Europe are rallying off the lows, having seen heavy losses earlier in the session. The FTSE’s decline is being helped along by some impressive profit warnings from the likes of Tate & Lyle and Mothercare, while Tesco continues to operate under a cloud as the chairman comes under fire from shareholders for presiding over one of the worst periods in the supermarket’s history. Sainsbury’s might feel aggrieved that its shares are suffering despite having had no comparable problems (so far), but with investors scrambling for the lifeboats the sector is surely looking at a grim few weeks before the next set of earnings emerge. Pharmaceuticals are being aggressively sold as well today thanks to the US government’s desire to clamp down on tax inversion deals, with AstraZeneca a particular victim as the market frets that Pfizer will not be making a return visit to the UK company.

US markets

US indices were slightly lower on the open, but the impact of weaker eurozone figures and the intensifying airstrikes in the Middle East is once again fading. The retreat from all-time highs has been rather precipitate, but it would still seem unwise to argue with the broader outlook, which remains supportive of gains in the longer term. All these short-term selloffs seem to be moves in search of a reason and usually the eventual result is that the selling subsides and fresh highs are recorded. In the face of robust economic data and improving earnings, there is little to suppose that this time will be any different.

Commodities

Gold somehow found the strength to rally towards $1225 today but this temporary bout of opportunistic buying is already running out of steam. Once again the $1240 area is an overambitious goal, and with the technical no longer indicating an oversold condition sellers will be looking to move back into the fray. A slightly weaker dollar also aided gold’s gains, but this is likely to be a short-lived development. Oil prices attempted to rise but were also knocked back, with yesterday’s restarting of production at Libya’s major field serving to increase the downward pressure on the commodity once again.

FX

The US dollar continues to struggle today, in the wake of yesterday's comments from NY Fed president William Dudley. Mr Dudley was prepared to say what everyone else was thinking; namely that the rise in the US dollar had not gone unnoticed at the Fed, which would normally prefer a slower rise in the currency. In essence, Mr Dudley has fired a warning shot to those that think a dollar rally is now a sure thing in the months to come. People started to think the same way about the Cable rally, and that didn’t turn out particularly well.