UK Market Comments

ECB news saw to it that the buoyant atmosphere in equity markets was prolonged into a second consecutive day, as investors look to put last week’s volatility firmly behind them.

UK markets

Leaving aside the small point of whether the ECB is actually considering a new bond purchase programme, the reports of a possible plan were enough to give markets the additional momentum they needed, building on the broadly upbeat atmosphere created by Apple’s excellent earnings last night. Disappointingly Trafalgar Day sees the FTSE 100 lagging behind France and Spain, but the ‘Nelson touch’ still applies to most of the UK market. Value hunters in particular have found a niche in the homebuilder sector while oil firms are enjoying a lift thanks to a bounce in crude prices on hopes of increased Chinese demand. The broad turnaround in sentiment has been quite remarkable, with the doom
callers of last week falling silent as buyers step back in. As usual, the market got carried away, and the steep declines of late have tempted in the dip buyers once more.

US markets

The gains today have come in spite of some disappointing figures from American icons like McDonalds, Coca-Cola and Lockheed, but Apple trumps these easily. Reports of the demise of the titan built by Steve Jobs have clearly been premature and the iPhone sales figures remind us how powerful the pull of a new gadget really is. However McDonalds seems to be locked in a permanent spiral of decline, with even its newer breakfast offerings seeing a drop in demand. McDonalds needs to arrest the collapse in earnings, and while the buyers have stepped in today to take the stock off the lows, a failure to construct a rescue plan will see the shares head back to two-year lows in short order.

Commodities

ECB bond buying rumours have given a lift to precious metals today while crude oil prices continue to benefit from the general revival of risk appetite across markets. The prospect of the ECB stepping in with some form of bond buying activity is always likely to revive gold to some degree, while the bounce from sub-$1200 shows that there are still those in this market that view gold as a promising investment, geopolitical problems or not. Indian buying will play its part too, and should give the metal the impetus to make further gains in the direction of $1260. For crude watchers, the danger is that the move off the lows seen last week is merely the excuse to push the price down once more,
especially since Saudi Arabia’s production is not about to see any reductions in the near future.

FX

The ECB news has provided the rationale for further euro selling, proving once again that Mario Draghi doesn’t actually need to do very much at all to provoke a drop in the single currency. Still, the corporate bond plan might have some legs to it given that it offers broader opportunities for the ECB to play its hand than is the case in other markets. For sterling watchers tomorrow’s BoE minutes will have lost some of their relevance given the policy wobbles we saw last week regarding interest rates. Still, signs of a renewed shifting to a more dovish stance could mean that today’s small drop in GBPUSD turns into something more substantial.