Market Comments

Heading into the close markets are actually managing to hold on to gains, with the FTSE 100 up 40 points.

UK markets

Oil companies and their oilfield services brethren continue to drive the London index, and today was no different. Having borne the brunt of the selling yesterday such firms as Tullow, Weir and Shell were leading the market higher, joined by Capita which has finally attracted the attention of bargain hunters after weeks of declines. Oil’s decline has dominated the headlines for so long now that the attention span of investors appears to be exhausted, especially with major events looming tomorrow, namely round one of the Greek presidential election and the final Fed decision of the year. Russia’s troubles have been an added woe for the market but even the DAX appears to be shrugging off the
slough of despondency, which could yet set us up nicely for a year-end rally.

US markets

Markets have been understandably rattled by the turmoil in Russia, especially the central bank’s nocturnal activities, but Wall Street managed to stake out some modest gains in the early part of the session. Contagion from Russia’s problems is high on the list of issues for markets, but perhaps all the excitement has a positive angle to it. The Fed is likely to have taken note of the rout in oil and the growing problems in Russia and factored them into its outlook, as well as the impact on inflation of declining oil prices. This could lead to a more dovish statement than had been anticipated, which could provide the foundation on which investors can build a sustained end-of-year rally.

Commodities

The day began in the now traditional fashion, with an oil selloff. A fall in Chinese manufacturing figures reminded everyone that the oil slump is a demand as well as a supply story, and with the world’s biggest importer of oil stumbling the picture has become more bearish as a result. However, there are still some buyers out there and the afternoon session saw crude prices rally off the lows. Gold managed a rally during the day on the back of Russia-inspired concerns, but this flight to safety was short-lived as the metal fell back below $1200 once more.

FX

Although PMI figures were somewhat mixed, the stronger ZEW reading from Germany allowed the euro room to push higher as some of the ECB QE trade was unwound. However the gains looked shaky during the afternoon as the Greek election weighed on traders’ minds. The gap between the parties has narrowed as fear of the unknown consequences of reneging on debt agreements loomed large for voters, but no one wants to be too heavily positioned going into the election lest the left-wing Syriza party still succeeds in winning power. Despite a weakening in UK CPI the pound was higher against the dollar ahead of BoE minutes and unemployment figures tomorrow that should prove to be broadly positive for the UK currency.