UK Market Comments

A choppy day for markets sees the FTSE 100 struggling to hold above 6830, while US indices look to consolidate gains after their day off.

UK markets

Bid talk continues to prop up a number of names on the FTSE, including Anglo American (up 3%), whose CEO intimated that the firm was open to takeover offers, and Tesco, whose shares are clawing their way upwards thanks to some brave types who think they can smell a bargain at current levels. A lot of the move higher has been based on the idea of some form of ECB action, but that still seems a distant prospect for this meeting. If Mario Draghi fails to issue the right soothing words there could be a modest selloff in the coming week, but with economic data from the US still strong there is still a convincing rationale to stay in equities, especially as the major volume players return following the end of the summer holidays. 

US markets

US indices remain within easy distance of their all-time highs, helped on their way by a double dose of manufacturing data. The final August Markit PMI was only fractionally lower, while the ISM reading smashed expectations, holding the market steady after an uncertain start. Morgan Stanley has come out with a suitably bullish prediction for the S&P 500, calling it at 3000 by 2020, but in the here and now further progress this week is likely to be difficult ahead of the ECB and non-farms. August was a good month for US equities, but historically September can be disappointing. A further burst of positive numbers could ensure that September 2014 bucks that trend.

Commodities

The first half of the year was a very good period for commodities, but the second half has been much more disappointing. Renewed dollar strength sent gold sharply lower today, with the price hitting lows not seen for around six weeks. In this environment the dollar is still king, suggesting more downside is in store. In oil markets the supply situation reasserted itself, with Brent and WTI giving back much of the ground gained in recent sessions. Fresh Libyan supplies mean that the situation could become even more bearish, indicating that we may see another test of the mid-August lows.

FX

Fresh five-month lows are being seen in GBP/USD this afternoon, thanks to polls that indicate a swing to the ‘Yes’ camp in the Scottish referendum. This has overridden the better reading this morning from the UK construction sector, which showed impressive growth. With less than three weeks until the election, the evident worry is that the divorce of Scotland from the rest of the UK will be a lot messier, with all the attendant worries about the sharing (or non-sharing) of the debt burden and potential currency arrangements. Markets hate uncertainty, and the Scottish referendum is providing this in spades