FTSE still unable to reach 6600 level

A surprise unanimous vote from the Bank of England to keep both rates and quantitative easing on hold saw markets pause, and despite the comparatively dovish remarks from the US Federal Reserve the FTSE 100 lacked the courage to surpass the sticking place that is the 6600 level.

European markets

Given that the defensive sector outperformed the FTSE 100 in the first six months of the year, there is a definite swing towards the more cyclical sector in recent days despite the slowdown in China. Investors may now feel that a lot of the bad news in relation to global growth has been discounted and thus the more risky mining sector is becoming more attractive.

Mining giant Rio Tinto helped to imbue this sentiment on reporting record output figures in its full-year production statement this morning. Production surged by 9% to 187 million tonnes for the year to 30 June. A price target cut from HSBC did little to hold back Evraz, which rose 3.47% in conjunction with other basic resource stocks. Imperial Tobacco, normally a safe defensive haven, fell 2.46% despite a broker upgrade.

There was a time when any Greece-related headlines had a significant contagion effect on global markets. Today, whether through increased tolerance or more likely the onset of chronic apathy, the news that international creditors had found a funding gap equivalent to 0.5% of the country’s GDP for 2013 and 2014 registered little more than a flicker on investors' radar.

US markets

An unexpected fall in housing starts threatened to upset the entire equity rally. Given that the US has in many respects used the housing market as the backbone recovery since the financial crisis began, the decline to the lowest level in nearly a year is somewhat confounding. The housing starts figure for June came in at 836,000 versus the 960,000 starts expected. This afternoon's statement from Fed chairman Ben Bernanke gave little away advocating an accommodative monetary stance as long as economic data remained sub-par.

Despite lukewarm earnings and a fairly downbeat outlook from Yahoo yesterday, the tech company surged over 6% to a multi-year high today. The investment in Chinese company Alibaba is clearly a plus point for Yahoo given that it is expected to conduct an IPO later this year. The Dow is currently trading up 17 points at 14,567.

FX

The failure of the Bank of England to provide any real clues to additional imminent monetary stimulus has sent the pound to the top of the G10 currency table in rising to $1.5270 against the dollar. Sterling has pulled back from these highs and is now consolidating around $1.52 as the dollar recovers some losses. It is unlikely that sterling will see much additional upside; there is a broad feeling that the Bank of England's surprise outcome today is merely temporary until the release of the inflation report in August.

Commodities

In spite of some impressive gains for gold in recent days, the $1300 level has been a thorn in the side of the bulls. The Ben Bernanke statement was not met well and has sent the yellow metal plummeting below the $1280 mark, lending gravitas to the theory that the recent gain has been little more than a dead-cat bounce. The overall medium-term trend suggests that the bias is on the downside, and support should be found in the short-term around the $1270/oz level.

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