UK Market Comments

Yesterday’s bounce is but a distant memory as screens turn red across financial markets. Central bank commentary is at the fore, but the US dollar continues to be the trade of choice at present.

UK markets

The 6700 level has slipped from the FTSE’s grasp this afternoon, having looked decidedly shaky all day. It wasn’t helped by another wholesale dumping of shares in miners, which had enjoyed the briefest of gains yesterday. The sector has taken the brunt of the selling as raw materials' prices dive once again, and spells out a very bleak outlook for the FTSE 100 versus other indices given its heavy mining contingent. Royal Mail shares also languished near the bottom of the index thanks to a bleak trading update issued by UK Mail. Combined with yesterday’s poor news from TNT the post IPO price performance is looking second-class at best, with the yield play attractiveness cancelled out by the dismal outlook for the delivery business. The 6580 level looks to be the next stopping point for the FTSE 100, a duplication of the August selling as the quarter- and month-end draws to a close.

US markets

It would be unfair to blame today’s slump in durable goods data for the dive in US markets, which has swiftly eradicated many of yesterday’s leap higher. The volatile reading was expected to drop back significantly following the July reading given that there wouldn’t be another set of bumper airline orders to lift the figures. Excluding aircraft orders the 0.7% gain was actually quite robust, but fears about higher US rates and Apple woes have conspired to turn the atmosphere on Wall Street distinctly bearish. Apple’s decline is due to a confluence of unforced errors such as the botched iOS 8 update but, with the stock holding up well following the recent product announcements, today’s declines could be more of a dip that offers a buying opportunity rather than the start of a bigger slump.

Commodities

Falling commodity prices have been a warning sign to those prepared to listen for months now, but it seems the rest of the financial community is finally waking up to the implications of declining raw materials prices. The drop in the price of iron ore and copper is a reflection of lessening demand across emerging markets, especially China, but it doesn’t look like the developed world (aside from the US) is capable of picking up the baton. Meanwhile precious metals offer little given that the geopolitical worries that gave gold and silver a lift in the first-half of the year have disappeared. While dips through $1215 over the past week have been bought, the bears still have the upper hand and the target remains $1200.

FX

The euro saw fresh 14-month lows against the US dollar as a long-standing FOMC hawk was wheeled out to indicate that rates may rise sooner than anticipated. This is a rerun of rate concerns from earlier in the month, and represents powerful counterbalance to the dovish tone that has emanated from FOMC meetings in recent months. Meanwhile the pound was enjoying a rise thanks to Mark Carney’s comments regarding a more balanced case for interest rate increases. In both the US and UK cases, the key is to watch what they say, not what they do, and on this basis the dovish, cautious approach to interest rates still holds sway.