Market Comments

Heading into the close the FTSE 100 has lost 40 points, hit by global growth concerns and a very feeble afternoon session on other indices.

UK markets

The positive note that pervades indices in Europe and the US is not being replicated on the FTSE 100, thanks once again to the index’s heavy consignment of mining stocks. Commodity prices remain on the back as the global economic outlook takes another hit, while the rise in geopolitical tensions in the crucial Middle Eastern theatre causes some more cautious investors to take shelter in the usual safe havens. 7000 seems a long time ago for the FTSE 100, which finds itself below a string of recent highs as sentiment turns sour. This has been the worst week for the index since the year began, and the worry is that next week offers little in the way of respite. UK company news is thin on the
ground, while the steady flow of US data threatens to put more fight back into the dollar. The FTSE enjoyed a brief moment in the sun as it rallied to a new all-time high, but it looks set to become the Cinderella of the indices once again, especially when set against European markets that are receiving regular doses of Mario Draghi’s patented QE medicine.

US markets

It has been a subdued start to the final session of the week, with even a cut to US GDP failing to inspire much excitement one way or another. Indices still look weak, and at the mercy of a resurgence of the long dollar trade that took something of a breather in recent sessions. Janet Yellen will speak later on today, and this is providing further encouragement for investors to sit back and await developments. With the next set of US earnings still over a week away most are preparing themselves for a boost to short-term volatility, especially as the month and quarter ends loom.

Commodities

The rally in precious metals has been stopped in its tracks, mostly due to the expectation of further US dollar strength but also to a perception that the gains of the past week or more were not much more than an oversold bounce that got a little carried away. Certainly the decisive rejection of $1220 yesterday signalled that the bulls were losing control, and a close back below the all-important $1200 level would signal further downside to come. Oil prices are already coming off as the market readjusts to Saudi Arabia’s more interventionist stance, but absent a sudden drop in output the upside momentum does not look to have much life span left to it.

FX

The short squeeze in the euro may well have run its course. Three attempts by EUR/USD to break through $1.10 have failed this week, signalling that the cleaning out of weaker short positions has come to an end and that normal service in this currency pair, i.e. the current downtrend, can resume. It is a dollar-focused week next week, assuming that Janet Yellen does not spoil this probability with a decidedly dovish outlook this evening.