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The UK labour picture may have given a small boost to sentiment with the unemployment rate remaining at 7.8% as expected, while the number of unemployed fell by 5000. Alas, the momentum to drive equities higher in the face of the uncertainty arising in the emerging bond markets and of continual fears of Fed tapering suggests that upside moves today were of the ‘relief’ variety rather than investor conviction.
It’s been a while since Greece has been in the headlines, yet the sudden closure of the country’s state broadcaster, ERT, to save taxpayer money, no less, and the relegation of Greek equities to the emerging market sector has seen the country back in the headlines and for all the wrong reasons.
M&A activity was a push and pull catalyst, with Severn Trent wallowing deeper as the day progressed as investors digested the unsuccessful takeover bid by Borealis Infrastructure Management. The stock lost over 9% on the day, adding up to a total decline of 20% from the highs of just under 2200p seen less than a week ago. Fitch ratings agency has stated that Vodafone could end up being downgraded if they succeed in their bid to acquire Kabel Deutscheland. This is clearly weighing as the share price dropped 5.38% today.
A higher open for US stocks was a short-lived event and the Dow is currently trading 16 points lower on the day at 15,107. Despite calmness in the credit markets, traders are taking a step back and avoiding decisions. It has become clear now that any forthcoming economic data will need to really impress or depress if we are to see a broad trajectory. Investors will get to see the federal budget balance later this evening. Expectations are for a deficit of $110.2 billion; anything better than this number could imply a stronger dollar in the short term.
Brent crude oil pushed through the $103/bbl level despite weekly inventories for oil once again rising. Last week stockpiles rose by nine million barrels and while the International Energy Agency has correctly stated that global demand for oil is waning due to economic declines, there does appear to be a certain degree of opportunistic buying in this area. The marginally weaker dollar is also helping the upside.
Gold has also pushed slightly higher, again due to a weaker dollar and in some respects as a result of a new injection of fear from the uncertainty arising in other asset classes. The price of the shiny metal posted a five-day high but remains resolutely below the $1400 level for now. A break above the $1425/oz level would certainly give some additional momentum to the upside.
The Japanese yen added more strength against the dollar, dropping below the Y97.00 and Y96.00 markers in quick succession. Japan’s machinery orders disappointed, declining by 8.8% versus the 8.6% decline expected. On the positive side, the corporate goods price index (CGPI) pointed to inflation, shy of the estimate but implying that the aggressive tactics employed but the BoJ were initially taking hold.
The pound saw gains against the dollar despite MPC member Paul Fisher stating that while the UK economy is growing, it is moving slowly. He did not rule out the continuation of quantitative easing. As a result, the $1.57 level against the dollar is holding back upside gains for the time being.