UK Market Comments

Equity markets remain at risk from sudden drops, as markets try to tread water ahead of earnings season.

UK markets

The time until earnings season gets into its stride seems awfully large this afternoon, as quickfire selling saw indices give back many of the gains from the latter part of last week. The DAX’s 200 point move over the past week has been sliced unceremoniously in half, while the FTSE’s retreat from 6880 sounds a clear warning sign that investors still feel unhappy about moving above this level. Only Federal Reserve minutes can really provide another boost to upward momentum, but that is still 48 hours away, leaving the market broadly vulnerable to some more adventurous shorting.

US markets

The Dow Jones is stubbornly holding 17,000 this afternoon, refusing to let go of its Independence Day gift to America. But the rule seen in other indices applies here too – positive upward catalysts are still absent, even if the negative ones have dissipated too for now. Two or three days of selling would not be out of the ordinary, and if the price action of May and June has taught us anything, it is that no dip is too small to be bought. A dovish set of Fed minutes could convince some nervous investors to enter the market, and it still remains a question of when, not if, S&P 2000 appears on price screens.

Commodities

Gold’s slip below $1320 indicates once again how difficult it is for the metal to sustain rallies in an environment where equities are still the only place to be. Ukraine appears to be gaining the upper hand versus the separatists, and the ISIS tide has stalled for now, removing the few reasons that still existed for being in gold. Traders will be conscious of the last time gold failed at $1330, when the metal dived in short order back towards $1280.

FX

The pound has lost ground against the dollar and the euro today, but this is just the unwinding of positions rather than the beginning of a turnaround in these durable trends. Unless the UK experiences a major upset in coming months, and the chances of that look slim at best, the driving force of a stronger pound will resume in coming sessions, with the EUR/GBP target still the 2012 low sub €.78.