Positive data keeps equities buoyant

Christmas arrived relatively early for the UK and eurozone macro-economic data-watchers today.

Initial expectations conceived that European equity markets would trade in somewhat Limbo-like conditions in the run-up to the FOMC statement later this evening. News that UK unemployment had ticked down to 7.4%, along with a fairly upbeat German business climate index, ensured that the recent upside gains were mostly retained.

Strong fundamental data in UK and Europe

The UK benchmark seems glued to the 6500 level at the moment, with any dips below being somewhat shallow and short-lived. The better fundamental data, both domestically and overseas, has been supportive for some basic material stocks, with Polymetal International and Antofagasta seeing decent buying today.

UK consumer spending in December needed to be good, given how disappointing the last two months were. As we approach Christmas, retail sales have seen a massive lift. This was indicated by the CBI realised sales index, which surged to 34 against an expectation of nine, and was well above last month’s dire figure of just one.

ARM Holdings has also seen additional gains. It has risen back through the 1000p per share mark, helped along by a 0.7% gain in the Apple share price.

John Wood Group, seemingly unable to attract bargain-hunters, has continued its slump. Today it fell by 4.7% to a 17-month low.

Investors got fired up about Centrica today, lifting the share price by 2.71%, after news that it would be extending its share buy-back scheme using the proceeds from the sale of power stations in Texas. The stock has seen its share price fall almost 18% in the past three months, not helped by Ed Miliband's threats of capping energy prices should Labour come to power.

Away from the general market hubbub, the virtual currency that is Bitcoin manifested its bubble-like qualities today, falling some 40% and trading below $500 following news that BTC China was to stop accepting customer deposits, owing to a central bank crackdown on the digital coin. Given that liquidity in the instrument has been shallow at best, it seems that buying in has been a lot easier to achieve than selling out.

Potential for QE tapering in US

The US citizen seems to have discounted any issues with rising mortgage rates, as new housing starts and building permits both rose above expectations. The former is at its highest rate since February 2008. Services output came in at 56, which is slightly lower than expected but well and truly in expansion territory.

This slew of better-than-expected data from the US means today could be as good as any to announce a small scaling-back of asset purchases. The positive sentiment that comes from strong fundamentals would go some way to seeing off any short-term moves to the downside in equity indices. Nevertheless, the likelihood of such a scenario before Ben Bernanke relinquishes tenure to Janet Yellen is not the consensus view.

Helping to support this viewpoint, the Dow Jones is currently up 60 points at 15,935.

A strengthening pound

Sterling retook the 1.64 level against the US dollar as the better unemployment data emerged. Retail sales saw bonds decline as market participants priced in a rate hike sooner rather than later.

The fact that the Bank of England has been slightly less optimistic than the bond markets over the past five months makes the fact that the market is ahead of the curve a bitter pill to swallow for the policymakers. One of the reasons CPI has ticked down to 2.1% is due to the fact that the pound has rallied against a basket of currencies, hence protecting UK consumers from imported inflation. It’s somewhat ironic that the BoE is concerned that a strong currency will inhibit exports. It may well have a negative effect, but the biggest concern is that growth in the eurozone or the lack thereof will stymie any demand.

Oil gets a boost

West Texas intermediate oil pushed higher today, heading towards the $98.20/bbl mark for the first time in a week, as economic data suggested greater upside in global growth. The EIA weekly crude inventories came in lower than expected at 2.94m against the 2.3m expected, helping to sustain the move.

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