UK Market Comments

It might be stormy in London, but the 'No' vote in Scotland and fresh gains on US indices mean that most traders are in a sunny mood as the weekend approaches.

UK markets

Scotland's referendum has upended the UK's constitutional order, but it is clear that equity markets are not particularly bothered about the political implications of further devolution for Scotland and the other UK nations. Although the FTSE has not been able to sustain gains in the direction of 6900, it is still enjoying something of a bounce as investors in companies with heavy Scottish exposure heave a sigh of relief that currency and contract wrangles are off the agenda. Traders seem to be finding a Scottish angle on most FTSE 100 companies today, and are undoubtedly pleased that this one hurdle to further progress has been eliminated. The FTSE 100 has lagged behind its peers in developed markets this year, up 1.5% versus 3% for the Dax and 9% for the S&P 500. Now would be the ideal time for the index to play catch-up, especially with a declining pound to flatter earnings figures.

US markets

US indices clocked up fresh record intraday highs today, building on yesterday's gains, making this week one of the best in this quarter. Quadruple witching today will have boosted the activity across indices, but the week sees markets ending in a positive frame of mind thanks to the dovish Fed statement and the rejection of the separatist cause in Scotland. All eyes are on Alibaba, which begins its life as a listed entity with expectations of a strong start to trading. Initial expectations were for a starting price of $68 per share. This has now moved up closer to $90 with IG's grey market almost exactly on the nose, having expected an opening price of $88 per share. This would mean a market capitalisation of circa $230bn, the same size as JP Morgan and bigger than IBM and Oracle. Now the hard part begins for Alibaba - it has arrived on a wave of enthusiasm, but investors expect much from the firm, and a failure to deliver will leave a very sour aftertaste.

Commodities

Precious metals are heading for the lows of the week once more, as the futility of holding gold in such a low-inflation environment that is almost tailor-made for equities becomes apparent. Neither gold nor silver is showing any inclination to work off their oversold conditions, even with both metals losing over 5% so far this month. In oil, contango in the futures markets means that oil firms are storing the commodity in tankers offshore, with the amount held on the seas moving back to levels not seen since April 2009. It would be difficult to find a clearer demonstration of oversupply in this market, and until the major producers decide to slash output this dysfunctional state of affairs
will continue.

FX

Sterling's relief rally against the US dollar was even more short-lived than the 'Yes' camp's hope of victory in Scotland last night. Having touched $1.65, the pound is now in retreat, dropping back down towards $1.63 as economic fundamentals reassert themselves. Scotland's decision to retain their historic ties with the rest of the UK may mean that a 2015 rate hike by the BoE is more likely, but it is the dollar that reigns supreme at present and will mean that GBP/USD remains on course to hit the month-lows around $1.61.