Downbeat end to the first half of 2013

The breach of several key technical levels in the European indices today tends to show a lack of investor belief in underlying fundamentals, closing out the month, the week and indeed the first half of the year with rather pessimistic sentiment.

European markets

Despite the recovery in equities over the past three days, driven mainly by the usual jawboning from the various central bank representatives, investors chose today to take some profits off the table, ahead of earnings season which gets fully underway next week. The lack of upside momentum belies the attempts by the Fed, and indeed the ECB, to assuage investor concerns with their continued accommodative policies. Federal Reserve member Jeremy Stein alluded to the hypothetical possibility that tapering could begin as early as this September. Given recent market form, you would expect by now that Fed members would do well to remove the word ‘taper’ from its lexicon in light of previous market reaction. This will be the first month in thirteen that the FTSE 100 will close lower, and could ultimately give weight to the idea that the marginal bounce over the last few days has been nothing but a correction in a brand new downtrend. The technical resistance from the 6270 levels is significant in keeping the market in a tight range, with the recent four-month lows of 6029 being key to maintaining any bullish status quo.

US markets

May’s Chicago PMI numbers were extremely good, so the drop back in June took investors by surprise, falling to 51.6 from 58.7 against the 55.5 expected. The S&P 500 index had reached 1614 in the futures market, but was relegated to the 1600 level on the news. The Dow, by comparison, took the news to heart, falling out of bed and breaching the 15,000 level once again. Blackberry was easily the most talked about stock today, opening down by a whopping 25% following reports that the smartphone maker showed an $84m loss for the three months to June. The stock price needs to hold above the $10 mark, otherwise there is a strong possibility that we will see a more exaggerated move back towards $8.50 p/s. The Dow is currently trading down 74 points at 14,050.

Commodities

While we cannot rule out the possibility that the rout in precious metals is over, today showed clearly that the bearishness may be slightly overdone. Silver added 4.7% while  gold bounced by 1.5% in late afternoon. The volatility of recent days can work in both directions, and even the deemed safe haven instruments are not immune to the unusual price action, which is clearly borne out of the choppy US bond market.

FX

>The US dollar staged a late rally on the back of the better-than-expected University of Michigan Consumer confidence numbers, which helped to drag the euro back from the 1.31 levels in short order. The euro had been given a boost by the outright denial from ECB governing council member Joerg Asmussen that any quantitative easing was on the cards.

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